Home ownership and interest rates topics at 2014 Virginia Land Forum
Are Americans stepping away from home ownership? That was one of the interesting debates at Tuesday’s 2014 Virginia Land Forum held at The Westin hotel in Henrico County.
About 300 people turned out for the fifth annual forum, sponsored by Commonwealth Land along with several local partners. It featured a panel of speakers from the real estate industry who took on the topic of chaos, disruption and opportunity in today’s markets.
Noting some of the changes that have occurred in real estate since the Great Recession of 2008-09, moderator Sidney Gunst noted that ownership of single family homes has dropped from nearly 70 percent to 63 percent. “We’ve had huge demographic shifts,” he said. “The rental market has taken off. Part of the American dream may be waning. I don’t know if it’s permanent or not, but the implications to us are huge.”
With the Millennial Generation (people born from 1977-92) now about 89 million strong and larger than the aging 76 million Baby Boomers (born between 1946-64), developers are doing things differently, said Daniel T. Schmitt, president and chief operating officer of HHHunt, a Blacksburg-based company that has built many large housing developments in Virginia.
Millennials are marrying and having families later in life than the boomers did. On the other hand, many boomers are moving out of homes in the suburbs where they raised their families, because “they don’t want to cut the grass anymore,” said Schmitt.
“The law of large numbers is driving the future of cities,” he said, and the changing demographics are changing markets.
Several speakers noted the strength of the multi-family sector — the best-performing asset in real estate for about the last 10 years. “We are shifting towards a rental basis society,” said Schmitt, whose company owns and manages about 8,000 apartments. He expects the home ownership rate to continue to drop and for apartment building to continue to rise, to the tune of 350,000 to 400,000 apartments over the next several years.
Today’s apartments are geared more toward long-term living he said, with concierge services and other amenities.
Asked by Gunst if developers would overbuild, Schmitt drew laughter when he responded, “We will overbuild. There’s no question. That’s what we do. We’re human and that’s human nature.” However, he added, “The metrics we’ve used in the past will be different going forward.”
Since the housing bust which followed the Great Recession, developers have repositioned their products, shying away from investing millions in equity before a development becomes income producing.
J. B. Gurley, a principle with Richmond-based Markel| Eagle Partners, said his company likes to recoup its investment over a five-to seven-year period. It invests in mixed-use projects, like West Broad Village, and residential developments.
The trend of young professionals living in downtown apartments so they can be close to work, bars and restaurants probably is here to stay, he said, but life stages can drive changes. “If you’re 32, 33 and if your choice is $25,000 in private school tuition or a quality public school education, schools make a difference.” Often when people get married and start a family, they start considering the suburbs for that reason.
Schmitt agreed that the suburbs aren’t dead. “It’s a good place to live, with quality schools and services. It will always be there.”
Michael Joyce, founder and president of JoycePayne Partners, a financial advisory firm in Richmond, wasn’t ready to write off possible future growth in home ownership. He noted that housing is more affordable today than it has been in many decades. Plus Millennials who have been living in their parents’ basements due to the slow economy will get jobs one day, he said, and move out. “We think there will be an increase in household formation at some point.”
Another issue of concern at the forum was low interest rates and how long they will be around. “We worry about interest rates,” said T. Gaylon Layfield III, president and CEO of Xenith Bank, Virginia’s 35th largest bank.
“We’re 10 years now into a low-interest rate environment … At some point, the law of economics will prevail and when the interest rates go up, they will go up fast. That will hurt real estate across the board.”