Urban Land Institute predicts that the old yardstick for measuring normal recovery will not hold good anymore

There are signs of recovery in the economy but trends show that demographics together with consumer activities have become the force behind new housing activities. Consequently the emerging residential market is totally different from the one that was there previous to the recession.

During the Midwinter Meeting of the Urban Land Institute the issues that were focused on were increasing foreclosures, re-setting of the private residential financial market together with changes in demand for housing fueled by the ‘baby boomers’, their children as also by immigrant families and the tech savvy generation. It was stressed that what had been the previous ‘old normal’ would not make a return but a new type of urban development would emerge that would be laced simultaneously with opportunities as well as challenges. If this fact is not grasped then the builders might construct properties that no longer are in demand.

Although stabilization in the housing sector has just started in the strongest markets, the overall prices of residences would probably decrease by another 10% in 2010. This would further increase the number of underwater mortgages with houses being worth less than the loan due.

The increasing number of those walking away from such mortgages suggests a new trend in homeownership. The belief about property being the surest road to wealth is badly shaken. It is making people turn to tenancy rather than ownership. Those who are buying will be doing so for reasons of shelter and not for investment.

Two key predictions were made for the coming decade. Firstly appreciation of property will rise but very slowly – 1% to 2% per year. The present home ownership rate of 67% (69% at the time of the housing boom) is likely to fall to 62%.

The opinion voiced was that the sustained stability of the housing market depended on how the private mortgage financing would revive and when it would do so. Currently the federal government provides nearly all the new mortgage loans through purchases of mortgages or securitization. Decreasing this staggering support would mean restructuring or totally doing away with Fannie Mae. Freddie Mac and the like, lessening possibilities of risk by tightening rules for the originators of mortgages and restoring consumer confidence in the mortgage backed securities.

These changes would for many years increase capital flow impacting on debt volume, costing and to whom it would be available.