Housing prices are the highest they’ve ever been… surging 18.6% annually in June, according to S&P CoreLogic Case-Shiller. It’s the largest increase on record — since the index began tracking home prices — surpassing May’s year-over-year increase of 16.8%. And it’s the third month in a row that the rate of house price increases… set a record.
According to Craig Lazzara, managing director and global head of index investment strategy at S&P/Dow Jones, “The last several months have been extraordinary not only in the level of price gains, but in the consistency of gains across the country. In June, all 20 cities rose, and all 20 gained more in the 12 months ended in June than they had gained in the 12 months ended in May.”
In fact, home prices are currently 41% higher than their last peak, which occurred in 2006.
Are we beginning to head towards another bubble?
CNBC real estate correspondent Diana Olick notes, “A bubble tends to be something that’s inflated that could burst at any minute and change, and that’s not really the case here.”
The housing market “decidedly shot way ahead of the economy, to the point where we saw this incredibly overheated market characterized by massive multiple offers, contingency waivers, price escalation clauses, and, in fact, record prices,” reports George Ratiu, senior economist at realtor.com.
Low borrowing costs and work-from-home upgrades continue to stimulate demand… driving home prices at double-digit growths for the past eleven months. And housing supply continues to remain very tight.
“While the easing of temporary bottlenecks, such as material constraints and pandemic labor supply effects, should support an eventual recovery in supply … more persistent constraints, such as land use regulations, should continue to push up house prices in coming quarters, especially in the US, Canada, and UK,” Goldman Sachs economists say. And they’re not alone.
”Housing is something that average people own. If the stock market corrects from its “extremes” and housing outperforms, like it did in the inflationary ’70s, home equity as a percentage of total net worth will go to higher highs than we have ever seen in the data,” argues Cole Smead at Smead Capital Management.
“Homeowner equity has more than doubled over the past decade and has become a crucial buffer for many weathering the challenges of the pandemic,” adds Frank Martell of CoreLogic. “This reduces the likelihood of large numbers of distressed sales from homeowners who emerge from forbearance later in the year.”
Growth trend expected to continue
There are some early signs of cooling and, eventually, mortgage rates will likely begin to rise… although few predictions are for a dramatic snap back.
Instead, most believe that even when rates go up, real estate will continue to remain a good investment. Job force-age workers likely will be soon transitioning back to the office. And new graduates will be moving into their first jobs, contributing to a predicted wave of pent-up demand from first-time buyers… who can’t find relief in apartments. “First there was nothing to buy and now there’s nothing to rent,” says Rick Sharga, executive vice president of RealtyTrac.
Availability is limited across the board, adds Jay Parsons, deputy chief economist for RealPage. “Apartment occupancy is now at the highest level in at least three decades, and it’s a similar story in single-family rentals,” Parsons claims. “There’s a great reshuffling under way and everyone’s moving all at once,” says Zillow’s data analyst, Nicole Bachaud.
Yet, as the pandemic continues, many buyers are reconsidering their real estate wish lists. Urban flight is a real trend and statistics show a growing number of city residents leaving their densely populated neighborhoods for greener pastures with fewer neighbors. Research from the Brookings Institute shows that urban populations are decreasing as more and more people seek out more space and less congestion.
And an interesting housing development model is emerging to meet this trend… melding together the amenities of “near suburbia” and the character of more rural environments.
Is the Agrihood the neighborhood of the future?
Shorthand for “agricultural neighborhood,” the agrihood is a sprawling, single-family — or mixed-use development — that thrives around or includes farms, pastures, community gardens and other sustainability-minded resources. Oftentimes, agrihoods include actual working farms… and their harvests are distributed or sold to the residents of the development.
It’s actually not a new idea
Setting aside commonly held agricultural land has been part of town planning since the end of the Medieval Period. Throughout the industrialization of Europe and North America in the 18th and 19th centuries, community gardens and allotments were regularly set aside to enable working class people to supplement their diets with seasonal vegetables.
The widespread promotion of “victory gardens” in the war years brought the idea of community agriculture in non-agricultural settings into the 20th century.
What’s different and new with today’s agrihood development model… is that it represents the intersection of a pandemic-fueled search for open space. And an uptick in people prioritizing local food production.
According to the Farmer’s Market Coalition, statistics kept by the United States Department of Agriculture show that the number of farmers’ markets in the US has quadrupled in the last 25 years. In 2009, the USDA launched the “Know Your Farmer, Know Your Food” initiative. And locally-produced food soon became the fastest-growing market sector in grocery store sales. The driving forces behind farm to table and locavore eating have, in a large part, fueled the growth of agrihoods.
Notably, farms have historically been bulldozed to make way for new housing developments.
In a somewhat ironic twist, developers are now building farms to attract buyers.
A development model that’s gaining traction
Agrihoods, such as the 359-home Prairie Crossing outside Chicago, got their start in the 1980s. What’s changed in 2021 is the size and number of projects. As well as the entry into the space of large corporate developers.
For example, The New Home Company built a new barn to be the centerpiece of The Cannery, a 547-residence community in Davis, California. The community includes a 7.5-acre farm and full-time farmer… and residents can sign up for delivery of fruit and vegetables grown onsite. Almond and pear trees line bike trails and footpaths linking the Cannery to the nearby University of California at Davis, which is among the top US agriculture schools.
At DMB’s Kukui’ula, a 1,500-unit resort community on the Hawaiian island of Kauai, community gardens offer vacation-home owners a chance to get their hands dirty. While growing tropical produce… that’s also sold to local restaurants.
Harvest, a $1 billion “urban agrarian” community built by Hillwood Development in Texas, hired a farmer to cultivate vegetables before construction began on a planned 3,200 houses. Willowsford, a community of 2,130 homes in Virginia’s Loudoun County, set aside 2,000 acres of green space, including 300 acres for raising fruit, vegetables, chickens and goats.
These high-end developments feature the expected golf courses and clubhouses… while offering the added bonus of locally grown seasonal produce.
A focus on sustainability and community
Boosting home sales isn’t the only reason developers are weaving farms into their subdivisions. This development model also allows for open space preservation while lessening the environmental impact that occurs when developing land. And it’s far less expensive to create community gardens or even a working, small farm… than it is to build a golf course.
While the pandemic may have peaked consumers’ interest in living in an agrihood, this building trend isn’t likely to fade any time soon. In fact, there are estimated to be more then 200 agrihoods across the US spanning 28 states.
As the housing industry evolves, developers are counting on fresh produce — and the sense of community that farming creates — to tempt a broad range of audiences to join the agrihood. From retired Baby Boomers looking to eat locally… to parents intent on nurturing their children through healthy farm-to-table meals… this lifestyle has something for everyone.
Opportunities for building product brands
This housing development model presents a wide range of opportunities for building product brands. While agrihoods differ in location and amenities offered… what they have in common, is an overarching commitment to healthier living.
Low VOC architectural coatings, roofing materials or siding made with recycled components, water-efficient fixtures, energy-efficient appliances, smart home systems, photovoltaic components… and many similar product categories are in high demand in these themed housing developments.
Thoughtful, sustainable product placement opportunities in these developments can create co-branded programs for building products — within the communities and across the broader housing market.
Looking to leverage emerging housing trends to grow your building product brand? Send an email to Steve Kleber at sk@kleberandassociates.com to learn more and get the conversation started.
