Back in 2007, when some hopeful real estate professionals were broadcasting that the time was right to jump into homeownership, Chris Thornberg wasn’t among them. Shortly after the National Association of Realtors launched a campaign that year emphasizing that it was a great time to jump in, Thornberg, the founding principal of Los Angeles-based Beacon Economics, responded with an interview with TheOrange County Register. "What’s the point of buying today when you can buy it for 10% less in a year?" Thornberg said.
He had a point.
But these days he’s feeling quite different. "When you look at interest rates and the price of homes relative to people’s income, you see affordability is really, really good right now," he told Builder in a phone interview this week. "In a lot of markets in the U.S., the degree to which affordability has improved makes this a time that you want to get involved in the market."
While he acknowledges that the market is still swamped with foreclosures and an oversupply of housing, "those are transitory factors," he says. "Delinquency rates are falling rapidly and excess supply will be burned off in the next year or so. Population has been allowed to catch up, if you will, to the oversupply of housing, which is exactly what we needed to see the housing market bounce back."
And while buyers should keep in mind that they may need to hold onto the property for some time to see appreciation, he says, "I don’t see prices going much lower."
The biggest challenge he foresees for housing’s recovery is the lack of equity in homes, which he says will have a particularly strong influence on the new home market. "People that would normally be the move-up market now don’t have the equity to be a move-up market. … Those move-up buyers tend to be the core demand for new housing."
Instead, he says, demand will pick up first for entry-level and multifamily housing, and he advises builders to adapt their products accordingly. "Builders should be asking ‘How do we create product for those don’t have as much equity?’ You should be thinking more the bottom end of the market than the top."
Claire Easley is a senior editor at Builder.