Assuming three people per household (once they get settled), immigration creates the need for 300,000 more housing units every year. The United States is experiencing a tremendous wave of immigration, with the number of immigrants increasing steadily since the 1930s. Over the last two decades, the country has recognized an average of nearly 900,000 legal immigrants per year (400,000 new arrivals and 500,000 status adjustments), in comparison to just 450,000 per year during the prior two decades. These new arrivals tend to settle in large numbers in just a few states. Six states – California, New York, Texas, Florida, New Jersey and Illinois – accounted for two-thirds of the immigrant population in 2004.
While this portion of the population is likely to rent upon first arriving in the country, home ownership does increase as they spend more time in the country. This is one important segment of the population – and potential housing demand – that should not be overlooked.
Our grading system of the economy and the housing market is a “bell curve” model, with statistics at an all-time high receiving an “A,” statistics near the long-term average receiving a “C,” and the worst times ever receiving an “F.” In this grading system, it is OK to be a “C” student.
Here is our current report card:
Economic Growth: C
The economy continues to perform at its “average” pace. Employers have added 2.01 million new jobs over the last year, a growth rate of 1.5 percent. Inflation dropped slightly to 2.2 percent over last year, still well below its historical average of 4.2 percent.
Leading Indicators: C-
The economy is likely to slow over the next year. The leading indicator index is down 2.2 percent on an annualized basis over the last six months. May marks the fifth consecutive monthly decline, and not one of the index’s 10 components made a positive contribution to the index during the month.
Mortgage Rates: A
Fixed rates are declining while adjustable rates continue to rise, making it more difficult for entry-level buyers. The average fixed mortgage rate dropped 12 basis points to 5.53 percent, reaching its lowest 12-month average since April 2004. The one-year adjustable mortgage rate ticked up slightly to 4.24 percent. The 129 basis point spread between the two is the lowest since September 2001.
Consumer Behavior: C+
Consumer confidence posted its second straight gain in June, rising to 105.8, which is the highest level in three years. The present situation index and six-month expectations index also posted gains in June, suggesting that labor market and business activity will continue to pick up for the near future.
Existing-Home Market: A-
The existing-home market continues to remain strong. Annual sales volume fell to 7.13 million in May, with slight declines in the Midwest and the South, and an increase in sales volume in the West. The inventory of existing homes increased slightly to 4.3 months, but remains at an “A” grade.
New-Home Market: B+
Annualized new-home sales in May were just below 1.3 million units. Sales increased 23 percent in the Midwest and 2 percent in the West, and declined 24 percent in the Northeast and 1 percent in the South. Nationwide, new-home sales volume is up 4 percent from May 2004.
Housing Supply: C+
Housing starts rose to 2,009,000 in May, following revised April starts of 2,005,000. Starts increased 5 percent in the Northeast, 19 percent in the Midwest and 12 percent in the West, and declined 12 percent in the South. Single-family starts increased 5 percent. Following increases in April, permit activity fell slightly to 1,619,000 single-family permits and 2,050,000 total.
John Burns is the founder of Real Estate Consulting in Irvine, Calif., which monitors changes in real estate market conditions and provides consulting services, including strategic planning, market research and financial analysis.
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