Opportunity or challenge?

Pew Research looks at the inverse of falling homeownership rates here. The rate of rentership is growing a leap and a bound. Consider that in the decade, 2006 to 2016, household formations grew by 7.6 million (a lot of that relatively recently).

In that 10 years, the number of households that rent eclipsed total household formations, even as the absolute number of households headed by owners slipped by 1.1 million in the wake and after-effects of the Great Recession.

So the percentage of renters compared with owners rose during that same 10-year period from 31.2% in 2006 to 36.6%, a high-water mark since 1965.

So, again, for single-family developers and builders, is this an opportunity or a challenge?

Those to want to look at the renter-ship juggernaut as sheer opportunity might want to focus on the younger adult part of the current housing-choice spectrum, believing that the lion's share of those households are only renting temporarily. Pew analysts Anthony Cilluffo, Abigail Geiger and Richard Fry note:

In 2016, 65% of households headed by people younger than 35 were renting, up from 57% in 2006. Rental rates have also risen notably among those ages 35 to 44. In 2016, about four-in-ten (41%) households headed by someone in this age range were renting, up from 31% in 2006.

That big 10% jump among renters in the age-range of 35 to 44 is where many for-sale builders and developers foresee a sea change, in both absolute numbers of households, who will be catching-up in starting families and pushing for homeownership.

The big gut-check for those builders and developers, at least near-term, is what control each has of its destiny when it comes to supplying this market at prices it can tolerate and at margins a firm can live with and sustain.

Two big pressure points are these. While job growth and employment rates continue to run at solid positive levels, wage growth on an hourly basis is treading water. Here's how the Federal Reserve Bank of Atlanta looks at the challenges around household wages among people who've been employed, ones whose psyches might be most impacted by income inertia.

They're also ones whose psyches might be positively swayed were an economic outlook to suddenly brighten as a constructive policy period--taxes, pro-business, less regulation, etc.--may take hold.

So, again, builders and developers who are poised to deliver supplies of new for-sale homes and communities within the elastic range of people who believe now's their moment to make a move into homeownership--before interest rates go higher and prices spike to reflect higher input costs, etc.--may consider a flat wage growth environment a plus as a motivator.

In a mid-year pulse check of a broad universe of private home builders, Ivy Zelman and the Zelman & Associates team of analysts found solid evidence of demand and a fair amount of confidence, with a few known caveats.

Pain points that emerge when builders speak of their "challenges" are No. 1, lots, No. 2, labor, and No. 3, direct input cost pressure.

For builders who've got those three areas in hand as a result of careful planning, well-oiled operational and sales processes, cash, and clout, well, those challenges are for others. For them, they're opportunities.

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