Whether the market is up or down, one thing is certain: There’s a lot of potential energy in the housing market just waiting to be released. And this potential energy might just be hiding right underneath mortgage lenders’ noses.
That’s because for years rent prices have outpaced income growth, leading to greater rates of household compression — or families and individuals “doubling up” to combine their incomes in order to afford a shared home, Zillow suggests in a recent report.
“Due to doubling, thousands of potential households are tucked away, hidden inside the homes of existing households,” writes the real estate database’s research.
The national level of potential housing energy amounts to a 4.7% increase in the number of households. Given estimates that there are 116 million existing households, this percentage increase would add nearly 5.5 million additional households.
In illustrating this potential energy, Zillow explains that in 2000, the average number of adults per household was 1.75. By 2012, this number steadily increased to 1.83. However, if the number of adults per household instead remained constant over that period (instead of doubling up), we would have 5.4 million extra households.
Nationwide, the level of potential housing energy varies widely, but larger, more populous metro areas understandably have greater levels of hidden households.
Among the largest 35 metro areas in the U.S., the markets with the highest share of potential energy are Riverside, Calif., Miami-Fort Lauderdale and Orlando, Fla., where the uncoupling of existing households would imply a 12.6%, 11.3% and 10.5% increase in the number of households, respectively.
“While estimating if or when these hidden households will enter the housing market on their own is difficult, we do expect some of these hidden households to start spinning out into their own as economic conditions improve, unemployment rates continue to drop and incomes begin to rise.”
However, where these people will live is another story, as the ratio between the level of potential home buying energy and the number of available vacancies varies widely.
To access the full report, click here.
Written by Emily Study