Tuesday, August 23, 2016
Friday, July 1, 2016
U.S. home prices scaled new heights in April, with seven cities — Boston, Charlotte, Dallas, Denver, San Francisco, Seattle and Portland, Oregon — setting highs.
The Standard & Poor's/Case-Shiller 20-city home price index rose 5.4 percent in April compared with a year earlier, just below the 5.5 percent year-over-year gain posted in March.
Home values are now just 9.6 percent below their peak set nearly a decade ago, according to the report released Tuesday.
A shrinking supply of homes for sale has intensified competition from buyers and forced up prices. Demand has been further fueled by a healthy job market and historically low mortgage rates, which have made people more comfortable about paying higher home prices.
The number of listings has fallen 5.7 percent from a year ago, the National Association of Realtors said last week.
Home prices rose in all 20 major housing markets, with double-digit annual increases in Portland and Seattle.
"While strong price growth in these markets should help increase inventory in the coming months, homes will be significantly less affordable for homebuyers than this time last year," predicted Ralph McLaughlin, chief economist at the online real estate service Trulia.
Overall home ownership rates have dropped near a 48-year low in the aftermath of the housing bust that began in 2007. But sales have improved as the broader economy has slowly healed.
Sales of existing homes improved 1.8 percent last month to a seasonally adjusted annual rate of 5.53 million, according to the Realtors. It was the best pace since February 2007.
The foundation for much of that growth has been a low 4.7 percent unemployment rate, which reflects a stable period for workers. Rising prices have also been tempered by ultra-low mortgage rates, which have held monthly loan payments in check.
Mortgage buyer Freddie Mac said the 30-year fixed-rate mortgage averaged 3.56 percent last week — down from 4.02 percent a year ago and well below the long-term average of 6 percent.
New apartments hitting the rental market in 2016 are 8% smaller than they were 10 years ago, according to a recent report from online rental marketplace RentCafe.
Meanwhile, rents for all apartments on the market have risen 7% in the last five years.
This year, the average square footage of all new apartments, including studios, one-bedroom and two-bedroom apartments, was 934 square feet. Just a decade ago, the new units coming online offered an average of 1,015 square feet.
The national average for rent this year is $1,296 compared to $977 in 2011.
The report analyzed data from buildings in the 100 largest U.S. cities that have at least 50 units.
The biggest losers were new studio apartments, which have shrunk by nearly 18% since 2006 to an average 504 square feet this year.
One bedroom apartments are also getting smaller: shriveling 5% to 752 square feet from 794 square feet 10 years ago.
But not everything in the rental market is getting smaller.
Two-bedroom apartments have held relatively steady, increasing 1% to 1,126 in the last 10 years.
Developers have faced higher construction costs recently, especially in bigger cities, thanks in part to rising land costs and increased regulations.
Fitting more units in a building tends to bring a higher return on investment (similar to when airlines pack more seats on a plane).
Developers had hit the pause button on building in the wake of the 2008 housing crisis. The average size of a rental took its biggest hit from 2011 to 2012 when the size shrunk 2.8% in a single year.
Demand for rentals has been on the rise as Millennials delay homeownership, baby boomers look to downsize, home prices continue to rise and more people choose to live in cities.
"Most of the new apartments that are going up are in central areas, downtown, and there isn't a lot of space there, so developers are building up," said Ama Otet, RentCafe's real estate editor.
But rents have been rising faster than wages recently, which has created an affordability issue for many renters. Last week, a report from the Joint Center for Housing Studies of Harvard University showed more than 21 million people spend at least 30% of their paycheck on rent -- a record high.
The Great Recession rewrote the American dream. Millions of Americans who thought they’d captured the flag instead got swallowed up by a national mortgage-foreclosure crisis. Many of those former homeowners are now renters, competing in ever-more concentrated job markets for ever-scarcer affordable housing.
So perhaps it comes as no surprise that most Americans say that the housing crisis never ended. In fact, one in five Americans say that the worst is yet to come, according to a new poll from the John D. and Catherine T. MacArthur Foundation.
Pessimism about the housing market is not a narrow band, either. Asked about the difference between the start of the housing crisis in 2008 and where things stand today, the largest share of respondents said that we’re still in the thick of the housing crisis (44 percent). A whopping 81 percent of respondents said that housing affordability is a problem. And more than one-third of respondents (37 percent) said that housing affordability is a “very serious problem.” This share of worried Americans is also virtually unchanged from a year ago.
The poll also finds an enormous appetite for leadership from Washington, D.C. Respondents were split on how much they thought anyone could really do to solve the housing crisis, with about a third saying “a great deal,” a third saying “a fair amount,” and a third saying “just some” or “nothing at all.” But Americans think that it’s important that their leaders address the problem, no matter what. Large majorities of respondents said that it was “very important” for elected leaders to address housing affordability (60 percent) and that candidates for the presidential election were paying “not enough attention” to the issue (63 percent).
Asked about specific policies that could address housing affordability, the respondents favored them—all of them—by big margins. This portion on solutions follows verbatim from the poll:
• Revise the federal income tax code so that more families with incomes from $40,000 to $70,000 receive tax benefits intended to help them purchase homes. (Total favor: 81 percent; total oppose: 16 percent)
• Expand federal housing policies and programs to ensure that families earning less than $30,000 with children under age 18 receive some assistance with their housing costs. (Total favor: 80 percent; total oppose: 18 percent)
• Allow developers to build more housing units if they include units that are affordable to families making less than $50,000. (Total favor: 79 percent; total oppose: 18 percent)
• Expand federal housing policies and programs to ensure that low-income families with children under age 18 receive some assistance with their housing costs. (Total favor: 76 percent; total oppose: 22 percent)
• Require that at least 20 percent of housing in local communities is affordable for families making less than $50,000. (Total favor: 74 percent; total oppose: 23 percent)
• Ensure that federal programs, such as the Earned Income Tax Credit and Temporary Assistance for • Needy Families, provide enough income assistance to cover housing costs. (Total favor: 74 percent; total oppose: 22 percent)
• Give renters a federal tax break, similar to the federal tax break homeowners currently get when they deduct the interest they pay on their mortgage. (Total favor: 70 percent; total oppose: 26 percent)
Some of these proposals are fairly radical. Expanding the federal mortgage interest tax deduction to renters is a far-reaching proposal! Voters might not love several of these ideas after (say) they went through a Congressional Budget Office scoring, but the fact that a majority of them would welcome fairly dramatic action from Congress on affordable housing should give legislators reason to take notice.
It should also give voters pause that Congress doesn’t plan to do anything. It is worrying that, several years into the recovery, so many see the problem as not just persistent but worsening. They see the response from the government as not just insufficient but non-existent. There is no reason to think that federal spending on housing—which has declined over time and contributed to the painful persistence of the housing crisis—will improve any time before November or even after.
While the Republican or Democratic candidate for the White House could choose to make affordable housing a more salient aspect of his or her respective campaigns, nothing is likely to change without a sea change in Congress. Congressional deadlock has only diminished what little federal support for housing exists in the budget. For many Americans, the housing crisis won’t go away.
Thursday, May 19, 2016
The number of home buyers who say now is a good time to buy dipped to an all-time survey low in Fannie Mae’s latest Home Purchase Sentiment Index. Meanwhile, home owners who say now is a good time to sell soared to an all-time survey high.
The disconnect in the market is likely partially due to the limited number of homes for sale in many markets, allowing sellers to face less competition and ask for higher home prices. On the other hand, home buyers are having fewer choices and stuck paying higher prices, sometimes in multiple-bid situations.
Indeed, “we can partially attribute the sizable gain in April in home selling optimism both to a correction for last month’s unexpected dip and to typical seasonal strength in housing activity in the spring and summer,” says Doug Duncan, senior vice president and chief economist at Fannie Mae. “Even after accounting for these factors, continued tight housing supply has led to renewed strength in home price appreciation, making selling a home a more attractive prospect this year in particular. This improved sentiment could provide an extra boost of much-needed supply for the spring selling season.”
Some highlights from Fannie Mae’s latest Home Purchase Sentiment Index:
• 30% of Americans say now is a good time to purchase a home, a drop of 3 percentage points from the previous month and now at an all-time survey low.• 15% of Americans say now is a good time to sell a home, now at an all-time survey high.• More consumers think home prices will rise over the next 12 months compared to March, and slightly fewer consumers also expect mortgage rates to go up over the next year.• The percentage of respondents who say they are not concerned with losing their job increased 6 percentage points to 74%, nearly a 7 percentage point decrease in March.• The percentage of respondents who say their household income is significantly higher than it was 12 months ago held at 11%.
Friday, April 8, 2016
About 75% of first time homebuyers would prefer skip their starter home in order to obtain more long-term options, according to Bank of America’s Homebuyer Insights Report.
Here is a breakdown of what first time homebuyers prefer:
Source: Bank of America
Of these first time homebuyers, about 35% said they would like to retire in their first home purchase, according to the report. About 69% would prefer to wait and move into a nicer home in the future, as opposed to the 31% who would like to move into a starter home now.
Source: Bank of America
On the other hand, buyers who have a plan in place are more likely to purchase a starter home, as opposed to buyers who want a home someday, but have not solidified when. Among buyers with a plan already in place, 41% would prefer to buy a starter home, however 23% of buyers without a plan would buy a starter home now.
Of the reasons given for not purchasing a home, 56% said they don’t think they can afford the type of home they want, 34% said they are paying off debt and 28% said they don’t need a home yet.
The study showed that more Gen Xers have put off purchasing their home than Millennials because of debt. Whereas 32% of Millenials, aged 18 to 34, have put off buying a home due to debt, about 43% of Gen Xers, aged 35 to 49, have postponed due to debt.
All across the country, home prices are shooting up, driving buyers to slug it out in bloody bidding wars. And those feeling the punches the hardest: first-time home buyers. Cut me, Mick!
One of the main factors pushing up prices also happens to be one of the most intractable: There just aren’t enough newly constructed homes that are affordable for sale. Yet home builders, who could swoop in heroically and save cash-strapped millennials by creating a new wave of entry-level homes, aren’t coming to the rescue any time soon.
Much like home buyers themselves, builders are still struggling to recover from the housing crash of ’08—dealing with lenders who don’t want to lend and higher costs for all things housing-related.
Construction on single-family homes is expected to be up about 15% this year over the previous one, says Robert Dietz, chief economist at the National Association of Home Builders. About 647,900 new, single-family homes were completed in 2015, according to the U.S. Department of Commerce.
But don’t expect to score a bargain-basement deal on a brand-new starter home. Not anytime soon, anyway. That rose-colored American dream of moving into a gleaming new first home made just for you—well, it’s fast fading into scratchy black and white.
“Builders are creating larger, more expensive homes for older buyers” with the money to burn, Dietz says. Sorry, millennials! Those target older buyers are typically existing homeowners who want to move up into bigger homes.
So first-time buyers are caught in a classic bind. They don’t make up a significant share of the new-home market—only 11% of those 35 and under bought new, never-occupied homes, according to a recent National Association of Realtors® report. They’re just too darn expensive, and so not many new homes are being built for them. Can anyone say “chicken vs. egg”?
For example, the median price of a new home was $301,400 in February, according to the U.S. Department of Commerce. That’s a big contrast from the median cost of an existing home at $210,800 in February, according to NAR.
Homebuilders’ costs skyrocketed
The reason that new construction is more expensive isn’t just because you’re getting shiny new appliances and rooms that have never been lived in before. It’s everything that goes into developing a brand-new residential area.
“In some large metro areas like New York and San Francisco … it’s difficult to obtain land to build on,” Dietz says.
Builders in most markets must contend with zoning, securing permits, and taking care of any environmental issues, as well as installing the infrastructure on newer developments, including sewers and roads, he says.
And the longer it takes to prep the land and put up the houses, the more costly it is for builders—and therefore for buyers, too.
“If you buy the land, and it takes you 10 months instead of two months to get all the permits and agreements from utilities … [that] raises the cost for the builder and reduces the number of potential buyers willing to wait around a while until they can move in,” says Ken Simonson, chief economist for the Associated General Contractors of America.
There are more cost-effective ways to build. By fitting more residences such as townhouses into smaller lots in new developments, builders can charge less per home.
Residences are generally cheaper to build—and therefore cheaper to buy—farther from city centers. But many people want to avoid long commutes to work, says Susan Wachter, a real estate and finance professor at the Wharton School of the University of Pennsylvania. So those homes may end up being a harder sell.
Labor ain’t cheap either
The burst of the housing bubble in 2008 was catastrophic for the residential construction industry—about half of builders went out of business as buyers and financing dried up. Laborers who got laid off went on to other industries or careers.
Some builders are now just beginning to get back into the market. But even when they do, they often can’t find the skilled workers essential to constructing homes—the industry remains down about 900,000 laborers, says NAHB’s Dietz.
In addition, some contractors were burned during the financial crisis by builders who, once their own businesses began to suffer, stiffed contractors on their fees or paid them less than promised for labor, says Jonathan Smoke, chief economist of realtor.com.
Those enterprising contractors who stayed afloat by moving into home remodeling or commercial construction may be understandably reluctant to go back into business with the same builders who are now knocking on their doors.
Loans are tough to come by
It isn’t just hopeful home buyers who have to run the gantlet with newly strict lenders to get the necessary cash for a new home. The bulk of residential construction around the country is done by smaller builders who typically go to local lenders such as banks and credit unions for financing.
But after the crisis, lenders became way more cautious about doling out loans. This means developers and builders have a harder time getting the financing needed to embark on new projects and that limits the amount of new construction.
“There are limits to how fast the industry can grow, given the industry has to rebuild its workforce, rebuild the building lots supply, and also have an increased access to lending for builder loans,” Dietz says.
Glimmers of hope
But first-time buyers shouldn’t necessarily despair. There is hope!
Given the raw numbers of younger home buyers entering the market, it’s likely that builders will wake up to the opportunities they represent and start addressing it head-on. Eventually. Home designers can look at cheaper materials or construction to put up a quality home for less, says residential building consultant Tony Callahan, president of Kennesaw, GA–based Callahan Consulting Group.
For example, instead of installing a wooden banister along a staircase, a half-wall could go up instead, he says. Formica countertops in kitchens can be used instead of granite just as linoleum, instead of tile, can be laid down in the bathrooms. And not every room needs several windows.
“It’s really looking at all parts of the home,” Callahan says.
Smoke has also begun to see some of the bigger builders such as D.R. Horton put up more attractively priced dwellings.
“But it’s just not enough,” he says.
The country is losing more affordable homes each year and very few similarly low-priced residences are going up to replace them, Smoke warns.
Some are lost through simple wear and tear over time, others succumb to environmental disasters (such as storms) or are torn down so that bigger ones can go up in their stead, Smoke says. Investors have also swooped in in recent years and turned many of these less expensive abodes into rentals.
“You can’t have an increase in first-time buyers if the first-time buyers don’t have homes to purchase,” he says.