The Most Important Pieces of Housing Data

Several economists, financial pundits, bankers, and real estate experts have predicted for the past several years - using high tech and complex formulas - that the housing market shall continue to recover this year and for the next several years. While the news is generally optimistic from most of the pundits, there are two simple and easy-to-understand visualizations you can use to predict the return of the housing market yourself.

The first important graph to evaluate when it comes to predicting the return of the housing market, is the graph below. While the information on the graph is consistent (i.e. boring) it highlights a very key element of housing demand.

The net population growth - via birth rate and an influx of immigrants - of the United States has increased every year at approximately 3.0% for the past 30 plus years. The Census Bureau predicts this same growth rate, if not slightly higher in some years, for the next 20 plus years. What does this mean for the housing market? It means that demand for housing will continue to rise because new generations of the population will need a place to live.

The next important piece of data when it comes to predicting a housing market recovery is in the image below. When comparing the two images, the picture on the left is a map of the United States from 1960 and the image on the right is a map of the United States from 2015.

What are the differences between the two images? Trick question, there are no differences. The maps are the exact same. The United States has not produced any new land in the last 50 years. What does this mean for the housing market? It means that land is a limited resource, and an increase demand for the same supply is good news for those who own or invest in real estate.

Demand for housing will always be there. Only a few major shifts in the current way of life will ever reduce the demand for housing. Those major shifts would be if homeless living ever becomes the norm; if new land mass was added to the United States - which is not impossible, but improbable; and if the population of the United States was ever to shrink - which all indicators point to the population growing at a consistent rate for the foreseeable future.

While demand for housing will always be present, the level and amount of demand has always been in flux depending on the year or decade. For example, in 2000 the housing market was at an equilibrium point with supply and demand remaining at steady levels. In 2005, housing demand far exceeded housing supply and new and existing homes were practically flying off the shelves. In 2011, most sellers had difficultly giving away their homes.

With the last several years of the housing market recovery, buyers have slowly and tentatively re-entered the housing market - if they have re-entered the housing market at all. Think of water building up behind a dam. Water will eventually make its way through the dam, either by force or in a controlled manner. In 2005, one could think of homebuyers flooding the housing market by force. While this provides a short-term gain for all those involved in the real estate industry, it is not sustainable. Instead, we should focus on release the flood waters (i.e. homebuyers) in a controlled and sustainable manner.

To better illustrate this point of pent-up demand, take a look at the chart below from Dr. Lawrence Yun, chief economist from the National Association of Realtors.


In this chart, Dr. Yun highlights the key points in pent-up demand. If we think of the year 2000 as an equilibrium year for housing (and we can because in the year 2000 no one was talking about hosing, nothing good and nothing bad happened in housing therefore it was uneventful and used a constant for future comparisons) we can see that while the population of the United States grew in the past decade and a half, home sales declined in the last decade and a half. This pent-up demand will be the driving force for the housing market recovery.

So the next time you hear of financial advisers, real estate experts, and business pundits talk about the pros and cons of the housing market recovery, just remember these two simple charts and images and rest assured that the housing market will return.