Friday, July 1, 2016

WITH THE SUPPLY OF HOMES SLIGHT, U.S. PRICES SURGED IN APRIL

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.

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RENTERS, YOU'RE PAYING MORE FOR LESS SPACE

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.

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MOST AMERICANS THINK THE HOUSING CRISIS NEVER ENDED

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.

Maybe these are the same one in five Americans who say that they havesacrificed spending in order to make rent. Maybe they feel squeezed by housing markets where it costs more to rent than to own, but where households can hardly afford to do either. It’s nevertheless a staggering answer: 19 percent of poll respondents said that the worst is yet to come. And the share of respondents who gave that answer, polled between April and May of this year, is virtually unchanged from the share who responded the same way in 2015 (20 percent), 2014 (19 percent), and 2013 (19 percent).

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)
• Expand rental assistance to ensure that the approximately 14 million Americans who currently qualify for rental assistance but are not receiving it, get it. (Total favor: 73 percent; total oppose: 24 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.

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