The good folks at IMN brought us a great opportunity to speak with a real expert on the housing market during the most recent Fried On Business show.
Steve LaTerra, managing director of Meyers Research in Phoenix, paid us a visit to talk about the home building market nationally and in South Florida.
LaTerra will be at IMN’s 4th Annual Real Estate Private Equity Forum on Land, Homebuilding & Condo Development (East) on April 4-5 in Miami.
When you register, use the code JF10 to receive a 10% discount.
LaTerra said now is one of the most interesting time periods in the home building sector in the last 30 years. While there are pockets of concern, markets in most of the country are pretty healthy, he said.
“We all have to operate within an environment that’s defined by politics, capital flows and a lot of other things that we really have no control over,” he said.
“And yet, despite all of the challenges we’re facing, we’re doing pretty good right now. And that hasn’t been the case for the last 7 or 8 years – maybe as long as 10 in some markets.”
The housing market is starting to look better and feel better, he said. There’s been a strong start to the selling season in 2017, and he anticipates good performance throughout the year.
Meyers Research, LaTerra said, is keeping an eye on several factors, including:
– The political climate
– Consumer behavior
– Mortgage rates
Now, speaking of consumer behavior, the Millennial generation is now entering the prime home-buying age, LaTerra said, adding that a ULI study done three or four years ago indicates the Millennial generation has a higher propensity to buy homes than the previous generation.
“That’s not what you read in the press. There you find that everyone in this generation is moving to the inner city and moving into these rental communities so they can have walkability,” he said.
“That’s a great segment when you’re 25, but when you get into those buying ages in the mid-30s, I think you’ll start to see that behavior change. And, quite frankly, I think this is the year – 2017 – that you’ll actually start to see that happen.”
Personally, I tend to think that Millennials’ housing choices will still favor urban infill locations that provide some benefits of home ownership without making the trek from suburbia.
LaTerra said he agrees – to a point – but added that the suburbs are still the ultimate destination for many Millennials. It’s just taking them longer to get there.
International investors will also continue to have a keen eye for real estate, LaTerra said. 2016 was a peak year for international capital flowing to real estate, and he expects that to continue because of negative interest rates and political instability overseas.
As for the South Florida condo market, things continue to look good. The challenge here is that most condos in South Florida tend to be high-rise developments, LaTerra said. Most of the money has to be put in up-front before you know whether the project is going to be successful.
Lots of money in + a long absorption period = exposure to multiple economic cycles.
“That has kept a lot of money on the sidelines. I bring that up because the supply levels are still fairly low, and I expect them to stay fairly low. There’s only about 16 months of inventory in the greater Miami area. That’s not a big number. In fact, 24 months is what we look at as equilibrium,” he said.
“Unless money really starts flowing back into this space, which I don’t anticipate, I expect the market to stay very healthy.”
From my perspective, there’s very little detached single-family housing being developed in the South Florida market. LaTerra concurs.
“I was looking at some numbers. In 2016 – in the entire metro area of Miami, Fort Lauderdale and West Palm Beach – there were only about 6,100 new home sales. There were 111,000 resales. That’s a market that’s basically defined by resales. The new home market isn’t much of a contributor to the bottom line,” he said.
This interview was packed full of vital information, so click here to listen to the entire conversation with Steve LaTerra of Meyers Research.