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Raub Report September 2013

September 20, 2013

“The Renter Nation!”

This phrase was coined several years ago with the premise that Generation Y, those twenty somethings that will make up the majority of new households, and numbering nearly 10 million more than the Baby Boomers, would prefer renting over owning.  That would be a very big demographic shift with a big economic impact.  The idea was that with unemployment so high (the U-6 measure of Unemployment by the Bureau of Labor Statistics is actually at 14%), they can’t afford to move out of Mom’s basement to buy a house.  Other reasons are: they prefer to rent because it gives them more flexibility in where to live, and renting ties up less cash.  You can move whenever you want to wherever you want and maybe even keep two locations rented in different parts of the country.

Well, as those folks age they still want to live in the traditional single family home because they can put the dog in the back yard and play with the kids.  While Downtown living has become very fashionable, it’s a tough place to raise a family.

But here’s another factor that will have a bigger impact on San Antonio.

Home Prices will continue to rise.

Starter homes will be at least $150,000 to $185,000, if bought new.  Home demand is so strong that nice homes in nice neighborhoods with nice school districts garner multiple offers.  Housing is tight and will remain so for the foreseeable future. Homes sales are up 19% this year and days- on-market are down to 69! What’s more – new home construction is going to be slowed by:

  • tight supply of new home lots.  This will last for several years, maybe longer.  This is driving up land prices substantially.
  • Also labor costs are rising, as builders have slow-downs because they do not have enough sub-contractors to build the homes on schedule.
  • Material costs are rising.
  • Oh, and about those interest rates.  That market has changed and now historic interest rate lows are in our past and “normalized” rates will be in the future.  This means more money for the down payment, higher monthly payments versus renting longer and saving up more money to buy.  This will make it more difficult for 80% of San Antonians to qualify for the home of their dreams, or for whatever they would be willing to settle.

Consequently, there will be a continued high demand for rentals, whether they are single family detached homes or apartments.  It will be a Renter Nation, not because we like renting but many will have no other affordable option.

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