Thursday, May 19, 2016

SELLERS HAPPY, BUT HOME BUYERS ARE FRUSTRATED

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%.

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Friday, April 8, 2016

FIRST-TIME HOMEBUYERS WANT TO SKIP "STARTER HOME"



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.

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WHY AREN'T NEW HOMES GOING UP THAT MILLENNIALS CAN AFFORD?

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.

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INCREASE IN HOME RENOVATION PLANS SUGGESTS PEOPLE UNWILLING TO MOVE

More than a quarter of all U.S. homeowners are planning to improve or renovate their houses in the next year, according to a new report from Bankrate.

Bankrate said even lower-income homeowners are planning to renovate, using savings, credit cards or bank loans. Some people might just be sprucing up their houses to sell them. But there are lots of big projects planned — stuff you do when you want to stay in a house.

“Kitchen remodeling or even making an addition to the house – people don’t tend to do those large projects and then move right away,” said Mike Cetera, Bankrate’s personal loans and credit analyst.

Why are they staying put?

“I think this is a flag of surrender,” said Anthony Sanders, distinguished professor of finance at George Mason University.

Sanders said after the housing crisis, people gave up on the idea of buying a big, fancy house.

The thinking is: “I might as well enjoy the house that I’ve got," he said. "So let’s build a deck.”

Sanders said the average U.S. household is poorer now than it was before the crisis, and housing prices have risen out of reach.More than a quarter of all U.S. homeowners are planning to improve or renovate their houses in the next year, according to a new report from Bankrate.

Bankrate said even lower-income homeowners are planning to renovate, using savings, credit cards or bank loans. Some people might just be sprucing up their houses to sell them. But there are lots of big projects planned — stuff you do when you want to stay in a house.

“Kitchen remodeling or even making an addition to the house – people don’t tend to do those large projects and then move right away,” said Mike Cetera, Bankrate’s personal loans and credit analyst.

Why are they staying put?

“I think this is a flag of surrender,” said Anthony Sanders, distinguished professor of finance at George Mason University.

Sanders said after the housing crisis, people gave up on the idea of buying a big, fancy house.

The thinking is: “I might as well enjoy the house that I’ve got," he said. "So let’s build a deck.”

Sanders said the average U.S. household is poorer now than it was before the crisis, and housing prices have risen out of reach.

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Friday, March 11, 2016

FOREIGN BUYERS ARE PULLING BACK, REALTORS SAY

Demand from foreign buyers is weakening, the National Association of Realtors says, undermined by a strong U.S. dollar and rising home prices.

Last year, many real-estate experts predicted that foreign investors could flock to U.S. real estate as a safe haven amid global economic tumult. Last June, Realtors reported that Chinese buyers had surpassed Canadians as the top foreign buyers of U.S. real-estate, saying this reflected growing interest in the U.S. as a secure place to park their money.

In fact, there is growing evidence that many foreign buyers have been pulling back, in part because prices in many of the cities they favor, such as New York and San Francisco, have risen sharply. The affordability of those properties is weakened further by a stronger U.S. dollar.

In January, the median price of existing U.S. homes had increased 67% for a buyer from Brazil, factoring in the exchange rate, compared with a year earlier, according to NAR. For a buyer from Canada, it increased 27% and for a Chinese buyer, 14%.




China is also cracking down on buyers who try to evade a $50,000 annual limit on how much money they can transfer out of the country. Chinese buyers often skirted this requirement by transferring money via friends, family member or employees. In January, the country began more closely monitoring such transfers, NAR said.

Lawrence Yun, NAR’s chief economist, said it is unclear whether Chinese demand for U.S. homes will fall as much as demand from other countries. Chinese economic growth may have slowed, but the country is still reporting growth of more than 6%. And while many Chinese residents have lost money in the stock market, giving them less to spend, that could also prompt them to try to diversify their investments.

Foreign demand is difficult to quantify. NAR does so through a survey of real-estate agents it conducts annually, looking at the period from April through March. The results of this year’s survey are expected to be released in the early summer. Mr. Yun said he expects to see a decline in demand.

Foreign buyers remain a small sliver of the U.S. housing market. But any pullback could have a disproportionate effect on demand for high-end condos in places like Miami and Manhattan and luxury homes in Southern California.

There could be a silver lining, however: Falling foreign demand could help make homes more affordable for U.S. buyers.

“Given that the U.S. currently has a housing shortage, any demand pullback helps,” Mr. Yun said.

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WHAT YOU SHOULD KNOW

• According to the February Mortgage Bankers Association Builder Application Survey, new homepurchases surged 24 percent in February, kicking off the spring buying season.

• Conventional loans composed 67.7 percent of loan applications, RIA loans composed 18.7
percent, RHS/USDA loans composed 0.8 percent, and VA loans composed 12.8 percent. These
levels are not too different from the month prior.

• The average loan size of new homes increased from $325,806 in January to $328,370 in
February.

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MILLENIALS IN THE BURBS? YOU WON'T BELIEVE THE LATEST HOME-BUYING TRENDS

What’s a millennial pushing 30 to do? Apparently, leave the fun, the fantasy, the pace, and the possibilities of big-city living far behind and buy a home … out in the burbs.

Just 17% of buyers under the age of 35 closed on urban residences, down from 21% a year earlier, according to a recent National Association of Realtors® report on generational trends in home buying and selling.

The report looks at housing data from July 2014 through June 2015 and income data from the end of 2014.

The luster of urban life may be fading—for some, anyway—due to skyscraper-high prices in top markets. Suburbs exerted a strong pull on buyers of all age ranges. About 51% of millennial home buyers scooped up residences in the suburbs or a subdivision compared with 58% of Generation Xers (ages 36 to 50); 51% of baby boomers ages 51 to 60; 53% of boomers ages 61 to 69; and 42% of the Silent Generation (70 and older).

“The price of [city] homes is much too high,” says Jonathan Smoke, chief economist of realtor.com®. In contrast, “the suburbs offer millennials [and everyone else] more affordable homes.”

Millennials make up the largest share of home buyers at 35%, according to the report. That should come as no surprise, given the unprecedented size of their generation (83 million) and the life changes that are motivations for buying a home (nearly two-thirds of millennial buyers are married, while almost half have children living with them—and are therefore probably desperate for more space).
Who’s buying what?




The dreaded down payment
But the most challenging obstacle for aspiring home buyers of any generation—beyond finding their own personal palaces, securing a mortgage, and wading through reams of paperwork—is cobbling together the dreaded down payment.

“It’s often the largest financial challenge to a first-time home buyer to come up with all the funds that are necessary,” Smoke says.

More than half of millennials, 53%, who said saving up for a down payment was the most difficult part of buying the home of their dreams blamed student debt, according to the report. And almost a quarter, 23%, of them relied on family assistance to come up with the cash. “Hello, Mom…?”

But that family help might not be what it once was, says Donna Butts, executive director of Generations United, a Washington, DC–based group that advocates for intergenerational policies and practices at the national level. Parents these days may be tapped out from financing their children’s college tuition—as well as trying to help them pay down their student loan debt.

And these kinds of bills may lead more young people to live with their families longer as they save up for a home of their own, she says.

They also may be more than just a little leery of plunking down such a huge chunk of change after living through the Great Recession and some turbulent stock markets, saysJason Dorsey. He’s the chief strategy officer at the Center for Generational Kinetics, a millennial research and marketing firm based in Austin, TX.

However, it’s not just millennials struggling to save up that 20% down. About 44% of Generation Xers and 36% of boomers 60 and below who said that saving up for a down payment was the most difficult part of the home-buying process blamed being saddled with credit card debt, according to the report.

Another issue for those of any generation seeking to move into their own homes: how much they’re paying out each month in rent—which doesn’t leave too much left over to go into the trusty savings account, realtor.com’s Smoke says.

Why move to the suburbs?
There also just simply aren’t enough homes on the market that the average buyer can actually afford, particularly in high-priced urban centers, Smoke says.

But cheaper prices at the pump make it less expensive for drivers from the burbs to commute to work in the city.

And those communities, known for their strip malls and manicured lawns, are also becoming, well, more urban. As more former urban dwellers move in, more cafes, trendy boutiques, and Whole Foods stores are going up. And the Main Streets are becoming more walkable.
Who’s buying the biggest homes?
Once they get to those suburbs, Generation Xers are the most likely to want to trade up to larger residences as their families expand.

Despite Gen Xers often bringing home more bacon than they did when they were just starting out, it can be just as hard for them to come up with the pan to fry it in—or rather the down payment needed to score a larger home, says Smoke. That’s because the housing market is just starting to recover, so they haven’t been rewarded with the big price bumps or have the home equity that would provide them the extra cash needed for that down payment.

“They are most likely to have children, and they’re increasingly starting to think about the potential of having their [elderly] parents move in with them,” he says.

Gen Xers snapped up the largest homes, at 2,200-square foot, for about $263,200, according to the report. Meanwhile millennials typically bought 1,720-square-foot residences for $187,400.

Boomers ages 51 to 60 scooped up 1,960-square-foot houses for $239,000, while boomers ages 61 to 69 purchased 1,950-square-foot houses for $220,000. Members of the Silent Generation typically bought smaller, 1,800-square-foot homes for $209,100.

“Older boomers are trying to downsize,” Smoke says. “The homes that the Generation Xers are leaving are the homes that the older millennials are interested in in the suburbs.”

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