Two weeks back in Washington DC for the Realtor mid-year meetings I was pretty surprised to hear both Lawrence Yun and an economist with Moody's talk about an upcoming new construction housing shortage. Yun talked about on average the US needs to be building about 1.6 million new homes per year, however in the last 3 years new builds are non-existent, and that currently the US is about 2.35 million homes short of meeting that need. So what does that mean in the future? A big shortage, and in doing a simple Google search I can see it's not just the US who is dealing with this, it's also the case in these stories in Austrailia, the UK, and Sweeden: http://www.nuwireinvestor.com/articles/australias-housing-prices-heading-higher-due-to-shortage-of-development-54891.aspx, http://2020cities.blogspot.com/2010/05/housing-shortage-hampers-stockholms.html, http://property.timesonline.co.uk/tol/life_and_style/property/article7111819.ece.
It seems the report of the pending housing shortage is starting to get press such as with MSN, Drew Kessler, and even NAR http://realestate.msn.com/article.aspx?cp-documentid=23505825, http://drewkessler.com/2010/05/24/housing-shortage/, http://www.realtor.org/rmonews_and_commentary/Economy/1006_economy_housingshortage.
Naturally the market will continue to be dominated by foreclosures in some areas as well as short sales. Missoula has remained pretty intact, however foreclosures are up and playing a much larger factor in our market today than ever before. However a foreclosure and a new build are two very different things and in many cases appeal to very different buyers. Foreclosures will remain popular with investors and people looking to fix-up places, while new will remain attractive for move-up / move-down buyers that aren't looking to buy a house that usually needs work or for many 1st time buyers or FHA buyers that don't want to become new home owners and inherit a lot of deferred maintenance.
Looking down the road in Western Montana that could be a very good thing, if the demand for new housing ramps up sharply that will dramatically impact the surviving lumber mills and the wood-products industry. Furthermore it will have a much stronger effect of stimulating our local economy than most federal government incentives. How so? Think about the amount of people and local supplies it takes to build a single house, the foundation work, the carpenter, the architect, electrician, plumber, roofer, flooring company, painters, and all the sub-contractors they hire out. Then there's also more need for city planners and engineers for oversight and permits, which in turn will help local governments. The impact on our local market economy would be dramatic. Now its widely known that there's tons of buildable land and subdivided lots around Missoula, however those are mostly in high priced areas where a new home will intentionally be a rather expensive one.
But if the recent trends have taught us anything, that's not what will lead the charge in demand. Our market, much like many others nationally is bifurcated (split), meaning that one half is strong (under $275k) and one half is weak (over $275k). Add in that the Gen-Y / Millenials are surging into the market and the demand for high-priced new construction over $275,000 will not be there. People will want affordable, sustainable, centralized, and customizable housing. All for a low-cost as possible.
Where in Missoula can you find that now? There's one neighborhood that comes to mind that is about 75% complete, Windsor Park. Another two are nearing completion as well, Canyon Creek is on it's final street it seems, and Pleasant Views is about 90% complete. After that... um... nowhere. Sure there's infill, but I don't know a lot of people who want to live in an alley-access home that's bracketed by a 4-plex and a 1972 Champion mobile home. There's a big shortage looming in Missoula and it could leave builders and city planners scrambling to get new projects on board.
OK, so here's the thing, in the next two years most likely Missoula will need multiple large-scale new housing projects, they'll need to be:
- Centralized and walk-able (not out of town, must be near local services)
- Sustainable (smaller lawns, focused on less water/energy usage)
- Affordable (most likely under $225,000)
- Customizable (the toughest challenge, they need to be something a Gen-Y/Gen-X buyer can customize to meet their individual needs)
Sounds a lot easier than it will really be, but its something that's right around the corner, and Missoula needs to prepare for it.
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