70% of US homes were built pre-1990: Opportunity for homebuilders
RealtyTrac recently released its Aging Home Analysis
RealtyTrac is a leading provider of real estate data, which is used by professionals in the real estate sector and analysts who cover industries related to the real estate industry. These analysts include people who follow homebuilders, mortgage REITs, building products companies, and even home improvement retailers.
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The aging home inventory is due to limited building over the past six years
Ever since the housing bust, homebuilding has been at a standstill. As you can see in the above chart, we used to average about 1.5 million units per year in housing starts. Since 2008, we have been consistently below 1 million units a year. You can see from the chart that in prior recessions, housing starts bottomed at the 900 thousand level or so and quickly rebounded. During this recession, we’ve been below the prior bottoms for years.
As a result of this lack of construction, homes are now much older—with 70% of the existing home inventory built before 1990. The states with the highest concentration of homes are largely in the Northeast and the Midwest. The West and the South have the highest concentration of newer homes.
This has created pent-up demand for new homes, especially as the baby boomers age, are looking at an empty nest, and don’t want to spend time and effort fixing up a house. They’re more likely to want to sell their old home and buy a new, more maintenance-free home. The sticking point has been the first time homebuyer.
Opportunities for the homebuilders
The aging home inventory represents a secular (long-term) opportunity for builders like Lennar (LEN), KB Home (KBH), PulteGroup (PHM), Standard Pacific (SPF), and NVR Homes (NVR) that will last for several years. The only reason this lack of building hasn’t created a real housing shortage is that household formation has been low for years. Household formation fell during the recession as college graduates moved in together to save money or moved back home with their parents. This phenomenon is temporary, however. Eventually, people get married, have kids, ditch the roommates, and move out of their parents’ basement.
The aging home supply represents an opportunity for the first-time homebuyer in that many available homes are starter homes. These homes are less likely to interest institutional investors due to the capital that has to be put into them. The first-time homebuyer has been facing competition from professional investors, which has driven up prices.
Aside from homebuilders, there are other ways to play this phenomenon. These homes are “fixer-uppers” and therefore will require investment. Originators that focus on 203k originations, home improvement retailers, and building materials firms will all benefit from this phenomenon.