Sharga: u201cResearch suggests that Millennials do want to be homeowners but aren't in a hurry to do it.u201d

IRVINE, CA—As reported last week, spring housing numbers from Case-Shiller and the FHFA index grew, and the latest trends including increased home sales, moderated pricing levels, decreased mortgage rates and improved inventory, according to Rick Sharga, EVP of caught up with Sharga to delve deeper into the meaning of the latest housing numbers and what he anticipates in the sector for the foreseeable future. What can we make of the most recent housing-index reports?

Sharga: Nationally, I stillthink we’re going to wind up a little light of last year’s numbers, at least in terms of existing home sales. I just don’t see that much demand, particularly from first-time homebuyers, and as home prices continue to go up that starts to create some affordability issues for those who might otherwise be interested in entering the market. I still expect to see home sales surpass last year’s numbers, but we’re weaker than where we should be. Which sectors of the housing market are recovering and growing the fastest?

Sharga: Senior housing, as in 55+, seems to have some momentum behind it. I wouldn’t be surprised to see that doing pretty well. Entry level is probably the weakest and is struggling in terms of supply and demand. There’s virtually no inventory out there—none at all in the new home market—and buyers who would make up most of that buying group (the 25-to 35-year-old cohort) are sitting on the sidelines. They typically make up from the high 30% to mid-40% in home sales activity, but they now make up 17% in existing homes and 20% in new homes. They’re choosing to rent rather than buy.

What will grow the fastest is hard to say—probably the upper-middle tier. I don’t think the high-end luxury market is growing significantly, but the numbers are skewed because we’re looking at such a low base to start with. Orange County is an exaggerated version of what we just talked about: home sales are up, inventory levels are up from the beginning of the year, but we still only have a 2.5-month supply, which is nothing. In a relatively normal market, we’re looking at six to nine months of supply. So it’s still very much a seller’s market. How does all this reconcile with the growth of the multifamily market and the reduced desire among young people to own a home that we’ve been hearing about?

Sharga: First of all, I want to distinguish something. I don’t agree with the theory that a lot of people are espousing right now that Millennials don’t want to be homeowners. Research suggests that they do want to be homeowners but aren’t in a hurry to do it. They’re facing financing prevention from being able to do so. We’re looking at a delay that, if it continues much longer, might lead to this age group ultimately having abnormally low levels of homeownership in the long run. There are stricter lending regulations with regard to student-loan debt—there’s a hard cap on what your debt-to-income ratio can be in order to get a mortgage. This group is having a much rougher time recovering from the recession than almost any other group. They’re above the national average in terms of unemployment rates and low-paying jobs, which factors against them entering the market. It bodes very well for the multifamily market in the near term, for the next few years at least. It also suggests an investment opportunity for people who want to buy single-family units and convert them into rentals. The shift in this area has been from institutional investors to smaller investors. What else can you tell us about the housing market and the economy looking ahead?

Sharga: One of the trends in new-home sales right now is builders focusing on higher-priced properties, and we will continue to see this trend for the meantime, especially in Orange County. Fewer homes are being built, but the ones being built are at higher prices in larger square footages—this makes sense from a builder’s perspective.

From the commercial real estate side, one of the interesting things about Orange County is that is seems to be doing much better than the rest of the country in terms of the office segment. This segment across the country is lagging badly as business are asking for and taking lower square footage per employee to accommodate open floor plans and employees working from home. But Orange County seems to be doing especially well. Rents are up, vacancies have dropped almost 90 basis points from a year ago. In terms of recovery, that market is the one to watch.