Is this really the new normal?

Source: Inman News (02/01/10) - In a new study, "Housing in America: The Next Decade," Urban Land Institute senior resident fellow John McIlwain says the housing market will not return to what it was prior to the downturn but rather that a "new normal" will take its place.

He expects another 10 percent decrease in residential prices this year, a jump in the number of borrowers abandoning "underwater" mortgages, and a change in consumer perceptions of homeownership.

He expects home price appreciation to hover around 1 percent or 2 percent per year after the market recovers and the national homeownership rate to drop from 67 percent currently to 62 percent by 2020.

In the coming decade, McIlwain expects the following:

• Older baby boomers to move to urban, mixed-use, mixed-age centers near family instead of retiring to Sun Belt communities;



• Immigrants to snub the suburbs in favor of more close-knit communities;



• Younger boomers to face the challenges of lost home equity and a smaller pool of move-up buyers;



• Generation Y to rent for long periods by choice or because they are paying off student loans or have stagnant incomes.
  

I’ve opined several times here about what I had already called the “New Normal” in our society or economy and the real estate market. McIlwain’s study covers areas that I had not considered, but the overall gist is much the same. If you read the four bulleted lines you can see that the real estate market will be vastly different than it was in the past.

In Michigan we are already feeling the impact of the loss of thousands of people as they move out of state to seek work. We have lost over 1 million people this decade and the drain continues. Our move-up market has been particularly dead, since people were moving out to move up. Almost all of our new-build projects have stalled out and most of the developers and builders have gone out of business or left the state, too. We have already lost 30-40% in most areas and the projected further losses will leave most properties at less that 50% of the value that they were at only 4-5 years ago.

So does this all portend Michigan becoming a vast wasteland of abandoned houses and run down suburban neighborhoods. It probably won’t get that bad, but it could get close. We haven’t really fully felt the impact of the automotive industry realignment that is going on right now. Brands are still in the process of being shut down, along with the plants that build them and the plants of their suppliers and the plants of the third-tier suppliers and on down the line.

We celebrate every announcement of some new windmill plant or movie studio being built in Michigan, but the reality is that only a few hundred of the thousand that have lost their jobs in automotive are going to end up making windmills or working on movies. We are undergoing a fundamental reset in our state’s economy without the benefit of any real leadership from our state’s politicians and bureaucrats who are busy arguing with each other and trying to save their own jobs and benefits.

For a Realtor this means getting used to selling short sales and foreclosures; but, to whom? Local investors can only buy up so much property and we will soon run out of first time buyers, who have been the backbone of non-investor sales at the bottom end of the market. I suppose that we could start selling our homes to the Indian and Chinese, since they have the manufacturing jobs that we lost and the money that we no longer make here. They might as well also become the landlords of a bankrupt America.