Residential real estate continues to be good investment
Curt Culver is bullish on the residential real estate market. Culver should know. As president and CEO of Milwaukee-based MGIC Investment, it’s in his company’s best interest to accurately forecast trends in residential real estate, and, from where he’s sitting, the future looks bright.
For one thing, the demand factors affecting housing markets — strong demographics and increasing home ownership rates — are going to lead to huge mortgage originations throughout the next two decades. The projected population increase of 35 million in the next decade will expand home ownership nationally, according to Culver.
Contributing to the housing-demand boom is the influx of immigrants and their desire to own homes.
"Immigrants are going to represent 50% of the population increase," Culver says. "Minorities are going to account for two-thirds of the (new) households."
With the increase in population, including immigrants, businesses involved in the housing industry will have to start focusing on the first-time home owners and all the potential services they need, Culver says, noting that home ownership for minorities is currently only 46% while home ownership for whites is 75%.
"The other area that’s really underserved is people who make less than median income," Culver says. "They have a home ownership rate of about 53%. If you make more than median income, home ownership rates go up to 82%, so that sector’s already well served."
The third sector for growth is people 35 and under, who have home ownership rates of 42%, according to Culver. Home ownership rates are approximately 77% for those 36 and older. Culver notes that the average age of a first-time homebuyer 20 years ago was 29; now it is 35.
"The reality is young people are going to be coming online to buy a lot of homes," Culver says. "As a result of that, this decade — the zeroes — will be the greatest addition to home owners that we’ve ever had. Fifteen million homeowners will be added versus 11 million in the 1990s, which was the previous record. So there are terrific opportunities for anyone involved in housing, whatever that may be.
"And supporting that, and because of this huge demand, values should continue to increase throughout the decade at about 5%-6.5% a year," Culver says, "which is a wonderful investment for people to get into from the aspect of the strength of the values behind it."
Wisconsin has been particularly consistent with an average increase in property values of about 5.7% over the past five years. Contributing to the consistent increase is the conservative nature of Wisconsinites as well as the blue-collar nature of businesses here. Other states, like Minnesota, Florida and California, have real-estate value increases above 10% in part because of their technology-based economies or the sheer number of Fortune 500 companies headquartered in their respective states.
Another factor in rising housing values is growth in the amenities found in homes. Houses built in 2000 averaged 100 square feet more than houses built in 1990, according to Culver. Home having four bedrooms, 2.5-car garages and 2.5 bathrooms were all up 10% in 2000 versus 1990, too. Those amenities and others have created more value in the marketplace. In addition, land scarcity, environmental restrictions and building-product restrictions, such as with lumber, have also continued to drive values higher.
Delinquency rates increased in 2001, partly due to the recession, partly due to the law of averages. Loan delinquencies usually happen in the second or third year, and because a record number of mortgages were written within the last decade, including more affordable housing programs where little or no money is required to secure the loan, there is naturally a higher rate of delinquency now, according to Culver.
But he warns that mortgage interest rates will not get much lower and, in fact, may increase as confidence in the stock market rises.
"My expectation is that we’re pretty much at the low point in interest rates, and they’re going to rise in the second half of next year," Culver said.
Culver sees the recession as being relatively flat considering the low interest rates, cheap oil prices and the effects of the economic stimulus package being pushed by the White House and members of Congress. And the millions of people who have refinanced their mortgages means more people have more money to improve their financial position. On the down side, over 1 million people lost their jobs in 2001 due to the recession, which affects consumer confidence.
"You’ve got to get it going," Culver says of the economic stimulus packages being proposed in Congress and auto companies offering huge incentives to get people to buy cars at the end of 2001. "If we’re borrowing against the future, so be it. It’ll help get the consumer back on track for many things. Consumer sales may lag somewhat in the future, but the reality is, I think it’ll get people back to feeling good about buying other things.
"The whole key is getting people back to work," Culver says. "If we can do that by getting people back in the auto business and the suppliers that work for them sooner … I’d rather have it now than worry about if it’s going to happen to us again. It just becomes self-fulfilling once the positives start happening."
Jan. 18, 2002 Small Business Times, Milwaukee
