The housing market has improved significantly since the start of 2012, thanks in large part to the elevated role of investors and all-cash homebuyers, which accounted for about 19 percent and 30 percent respectively of all sales in March 2013, according to the National Association of Realtors.
Heightened demand from the investor and cash-buyer set has helped home prices recover in many markets across the country, lifting homeowners out of negative equity territory and fueling more home building. But the current role of investors and cash buyers is not sustainable over the long-run, because as home prices continue to rise and real estate investments become less attractive, that group will exit the housing market.
That raises the question: Is there housing demand to replace these buyers if they pull back?
A key demographic impact of the housing and economic downturns of the last few years has been a reduced rate of household formation. While the nation's population has continued to grow, the number of independent households – both renters and owners – has not kept pace.
According to data from the Census Bureau's American Community Survey (ACS), from 2006 to 2011 the population of the United States grew more than 4 percent. However, during that same period, there was only about 3 percent growth in the number of households.
So where are these collapsed and deferred households? Some are recent college graduates who moved in with parents instead of buying or renting their own home. Others are roommates who have doubled or tripled up in residences, rather than renting separate apartments.
According to the ACS, from 2006 to 2011, there was only about 2 percent growth in family households, but an expansion of 5 percent (faster than population growth) of non-family households, meaning there has been more growth for Americans living together with roommates who are not relatives than traditional family-based households.
In the long-run, as people get married and start families, these "missing" households will form. With improving labor conditions, unlocking that pent-up housing demand will strengthen both the rental and owner-occupied housing markets.
Additionally, as the chart above indicates, there will be additional homebuying demand from some of the renting households that formed over the last six or seven years. As opposed to the number of owner-occupied homes, the number of renting households grew dramatically. The number of renting households in single-family homes grew by 2.5 million (22 percent), while more traditional renting households in multifamily units were up almost 7 percent. (Declines in homeowning households are particularly concentrated among those 44 or younger.)
These data illustrate real demand for housing is on the sidelines, particularly among younger Americans. While some analysts have suggested that homeownership has lost its role as an aspirational goal of the middle class, polling data of renters do not bear this out. For example, according to Gallup, 7 in 10 non-homeowners aged 18 to 29 plan to buy a home in the next 10 years.
For these younger prospective homebuyers, policy debates concerning the future of the housing finance system and homeownership programs like the mortgage interest deduction will have real impacts on their housing and wealth status in the years to come.
Robert Dietz is an economist with the National Association of Home Builders (NAHB). Previously an economist with the Congressional Joint Committee on Taxation, Robert writes on housing and policy issues at NAHB's economics blog Eye on Housing. Follow Robert on Twitter at @dietz_econ. The information presented here does not necessarily represent the views of NAHB or its membership.