Forecast sees long-term strength in real estate, but some pockets of weakness

Posted3/24/2017 6:00 AM

America's growing population should continue boosting home sales and prices over the next 10 years, a respected economist says, but the forecast for rental properties is a bit cloudy.

Q. We were thinking about buying our first home in 2012, but we thought prices would drop like they did in 2007. They did not, so we are still renting. When do you think that the "housing bubble" will burst, like it did 10 years ago?


A. I don't think the real estate "bubble" will burst anytime soon. Average home prices have increased about 35 percent since you first started thinking about purchasing a house in 2012: If you were in the $200,000 price range then, you're in the $270,000 range now.

An interesting report by Lawrence Yun, chief economist of the National Association of Realtors, stated that America's rising population and slow-but-steady job growth "likely will release a pent-up demand in housing over the next 10 years." That bodes well for both home sales and future price increases.

The population is rising and more housing will be needed to meet demand, Yun explains. About 325 million people live in the U.S., and population projections forecast a 27 million increase to 352 million in 10 years.

Yet, demand for homes over the next 10 years will be uneven -- and those who are thinking about investing in apartments or other rental properties should take notice.

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"The number of young adults in their 20s is expected to drop," said Yun. "This demographic is mostly renters, and hence, rental demand will flatline."

Cautions Yun: "Real estate investors should be mindful that even though there is good rent growth today, that certainly will not be the case in a few years, especially given the ramp-up in apartment construction over the past few years."

Real estate trivia: The average size of an apartment in the U.S. is 861 square feet, according to the U.S. Energy Information Administration.

Q. I recently moved to a retirement community in Arizona and was surprised to learn that people here don't "spring their clocks forward" for daylight saving time. None of my neighbors know why my new state doesn't. Do you?


A. Sure. Daylight saving time, or "DST," was established in 1918 to save energy and also to preserve oil and fuel needed by the U.S. Army during World War I.

Most of the nation's people were happy about the approval of DST, because it gave them an extra hour of sunlight and, with the sun's warmth, allowed them to sip an extra glass of lemonade and to put their heaters on 60 minutes later.

Arizonans, though, didn't like the idea. They complained that an extra hour of sunlight would just mean one more hour of the desert's blistering heat, so they used their Constitutional right to reject the federally approved measure.

Another Congressional bill that was introduced in 2015 to force Arizona to adhere to the daylight saving time rule was quickly withdrawn after citizens and lawmakers from the Grand Canyon State testified that it would raise their air-conditioning bills and worsen the nation's energy crisis.

Hawaii doesn't observe DST either, largely because it's relatively close to the equator -- the midpoint of the Earth where the sun and moon equally share their 24 hours of darkness and light, 365 days each year.

Q. I was interested in your recent column about the tax issues involving homeowners who rent their property out on a short-term basis to tenants with the help of companies like Airbnb, HomeAway, VRBO or similar firms. I have thought about doing this myself because I travel a lot, leaving my home empty even though my housing payment still comes due on the 1st. But would my standard homeowners policy cover any damage the tenants might do to my home, or if one of them got hurt while staying there?

A. Probably not. Most conventional homeowners policies don't cover claims arising from a home-based business, and renting your home out for even a short period of time typically qualifies as a "business activity." That means you wouldn't be covered if, say, the short-term tenant trashes the place or breaks a leg after tripping over a sprinkler in the yard.

A few firms that arrange short-term tenancy agreements offer plans designed to protect clients who use their services to rent out property to others. But many of those programs are relatively expensive and have lots of loopholes that allow the plan's issuer to wiggle out of what the client originally thought was an ironclad guarantee of protection if something went wrong.

Call the company that provides your current homeowners or renters insurance policy first before you decide whether to rent your home or vacation property out on a temporary basis. You might be able to arrange a business-insurance or landlord policy, perhaps just for the length of the tenant's stay, which will provide much more protection at a far lower cost.

• For the booklet "Straight Talk About Living Trusts," send $4 and a self-addressed, stamped envelope to David Myers/Trust, P.O. Box 4405, Culver City, CA 90231-4405. Net proceeds will be sent to the American Red Cross.

© 2017, Cowles Syndicate Inc.

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