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Home Insider Blogs Eric Wu's Blog 4 Current Trends in Housing
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Feb 17
2009

4 Current Trends in Housing

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Posted by: Eric Wu on Feb 17, 2009 01:00

Tagged in: Occupancy , Budget Issues

We’re witnessing deflation and rising unemployment, resulting in trailing decreases in consumer spending.  The movement towards thrift spending has impacted the housing market, and I am noticing a couple of obvious trends.

1)  Empty nests are being filled

Renting is the largest living expense and consumers are moving home to reduce that cost.  Many recent college graduates, young professions, and the unemployed will be forced to move home.  

2)  Per unit occupancy is increasing

Before the recession, a typical 4 bedroom unit would house 2 or 3 occupants.  Now, residents are forgoing the luxury and privacy of living alone, and moving in with roommates.  We will continue to see a trend of more one bedrooms vacant compared to cheaper four bedroom counterparts.

3)  Influx of second homes becoming rentals 

As downward pressure is placed on the pockets of the upper-middle class, many owning vacation homes will begin to seek additional income via rent.  With some 6.6 million units classified as “second homes”, this will results in more rentals on the market.

4)  Rising vacancy, declining home purchasing

We’re seeing a positive correlation between the volume in home buyers and renters…And by positive correlation, keep in mind that I mean they are both decreasing.

What does this all mean?  Simply put, increases in vacancy and decreases in rental rates.  It does not mean that the rental sector will resemble the price sensitivity of the airline industry, but we will see a push towards more affordable housing options.  Anecdotally speaking, I've seen my properties decrease 10% in rental rates yoy.

How do you combat the current economic crisis?  Unfortunately, I do not know the exact answer, but the first step is to recognize that profits equal revenue minus costs.  It will be increasingly more difficult to increase revenue as the downtown continues, but you can take advantage by reducing costs.  Again, we're seeing deflation, so renegotiate contracts with your vendors, maintenance companies, etc.  Reductions in operating costs, advertising costs, staffing costs, turnover, and other line items can help you stay afloat. 

What other trends are you seeing?   


Comments (4)Add Comment
67
written by Mark Juleen, February 17, 2009
Eric-

Thanks for the uplifting post. smilies/wink.gif While analyzing your expense lines is always a good idea (whether the economy is good or bad), doing this alone is not the answer. You must be doing all you can today to set yourself apart from your competition. And cutting expenses most likely won't help you do so.

Our industry, unfortunately, has become known for selling a box with a price. Over the years many have slid by and turned what should be a "living experience" into something that is just another commodity. Just like this clip from the comedy classic, Tommy Boy, (http://www.youtube.com/watch?v=e6kmIChzVo4) many companies just stamp "Guaranteed" on their boxes and hope customers will believe it. "Hope" and the thought of "staying afloat" are not terms that help any company thrive and survive.

To really survive in this economy it's not about reducing your rates and controlling your expenses, it's about truly delivering on a brand experience to overcome the "Box With a Guarantee" stereotype.

OK, I'm done now. Enjoy your day! smilies/grin.gif

Mj
322
written by Eric Wu, February 17, 2009
Great points. I've been listening to Nassim Taleb too much. When referencing marketing and customer support, I definitely think innovation is the route to gain market share. I'm always an advocate in improvements in renter experience, customer support, and effectively branding and reaching prospective renters.

But not sure if the fundamentals will support improved branding as a competitive advantage across the majority of properties in the face of an economic downturn. Companies with low margins will face some tough decisions, and I would suggest decreasing marketing spend on print, and moving towards cheaper alternatives including social media is the right move. Though experimental advertising budgets are typically the first to be cut, this may not be the right decision. Operationally, not sure where the opportunity lies. Any insight here?

Line items was not a good use of words, and I am in complete agreement of improving the renter experience. Strong companies will thrive in this downtown, and the innovative ones will gain the largest share. Sorry for the depressing post! Next one will be more on innovations in social media.

Always a great conversation with you Mark!

-Eric Wu
67
written by Mark Juleen, February 17, 2009
Eric-

Always fun to bounce the ideas. As I said on Twitter, it's really about who will be 1st to recover. We must look forward beyond the dip. What will pull you through, not necessarily what will help you stay afloat. The best brands wwill be the first to recover, and not get stuck in the dip.

Mj
679
written by Jonathan Saar, February 18, 2009
I agree with you both. My in-laws recently had to move in with us as a result of the free for all economy in Florida and the inability for them to find work at their age. I lost my job I had for almost 12 years last December. However, I am also a firm believer in having a positive and fruitful plan to move forward with. I think too many people sit and watch the news and have the opinion " What's the use?" As professionals it is up to us as companies to provide solid leadership and innovative thinking in whatever industry we are so that we can sucessfully continue to see growth and contribute to an eventual rebound in our economy. Thank you both for your insight
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