Aging Baby Boomers and the Housing Market?

Baby boomers have long accounted for a significant portion of the housing market, so how will the market be impacted by the aging of this large generation? Are we heading toward a “generational housing bubble?”

Fannie Mae’s Economic and Strategic Research Group teamed up with the University of Southern California to answer this question in a new Housing Insights report, titled, “The Coming Exodus of Older Homeowners.”

Currently, baby boomers, those born between 1946 and 1964, live in 46 million owner-occupied homes with a total combined value of $13.5 trillion, according to the research.

As baby boomers enter their 70s, the report said, “we can expect many to leave the housing market for rentals, senior care facilities, or even death.”

“With the oldest boomers now in their early 70s, the beginning of a mass homeownership exodus looms on the horizon, fueling fears of a ‘generational housing bubble’ in which homeownership demand from the younger generations is insufficient to fill the void left by multitudes of departing older owners,” stated Dowell Myers of the University of Southern California and Patrick Simmons of Fannie Mae in their report that was published on the Fannie Mae blog.

Examining historical and recent homeownership trends among older Americans, the researchers sought to predict how many older homeowners would leave the market over the next two decades.

Between 2006 and 2016, 9.2 million Americans who reached age 65 or older during the decade transitioned out of homeownership, the report indicated. Over the next 10 years, from 2016 to 2026, the researchers anticipate another 10.5 million to 11.9 million homeowners exiting their homes. Over the following decade, between 13.1 million and 14.6 million older Americans will exit the housing market.

“The number of older homeowners ‘at risk’ of attrition due to advancing age will balloon as the large baby boomer generation moves full-force into the 65-and-older age group where homeowner retention rates drop substantially,” Myers and Simmons explained.

The researchers pointed out some possible ways to “ease the market impacts of the coming wave of older homeowner departures,” such as offering home improvement financing and social services for those who wish to age in their homes instead of moving.

Another way to ease the impact is by helping the millennial generation to replace some of the boomers as they exit the market by ensuring “sustainable” financing options for first-time buyers.

The report pointed out that “immigration policy will also likely play a role in determining the adequacy of replacement demand for the homes vacated by boomers” because “immigrants contribute substantially to homeownership demand.”

“Fostering a smooth intergenerational handoff of housing assets will likely require approaches that span the age spectrum and that seek to forge a bond of mutual housing market interests between old and young,” Myers and Simmons said.

Posted on July 18, 2018 at 1:09 PM
Guy Arnone | Category: Real Estate

Realtor.com: Days on Market and Prices at Records

Amid nationwide shortages in supply, homebuyers in June had more options, but their choices were fast-moving and pricey, according to data from realtor.com®. The average home was listed for a median $299,000 and sold in 54 days—both new realtor.com.

On an annual basis, inventory in June sunk 4 percent, which is a departure from the average decline of 8 percent observed in the past year, the data show. List prices rose 9 percent year-over-year, which is in line with trend.

Homes are moving quicker out West, according to the data—in fact, of the 100 largest markets, there were six with days on market at a month or less, and five in the West: San Jose-Sunnyvale-Santa Clara, Calif. (23 days); Seattle-Tacoma-Bellevue, Wash. (24 days); San Francisco-Oakland-Hayward, Calif. (25 days); Omaha-Council Bluffs, Neb. (26 days); Salt Lake City, Utah (26 days); and Colorado Springs, Colo. (30 days).

For buyers entering the market, the dynamic is troubling.

“The pace of sales in the early days of summer continues to be as fierce and unforgiving as it’s ever been, especially for entry-level buyers,” says Javier Vivas, director of Economic Research for realtor.com. “On the bright side, buyers saw more new listings hit the market than they saw last June, causing inventory to drop at a slower rate.

“However, much of the new inventory is composed of higher-priced, newer and larger homes, forcing a very hungry pool of buyers to adjust their budgets,” Vivas says.

For more information, please visit www.realtor.com.

Posted on July 11, 2018 at 9:13 PM
Guy Arnone | Category: Real Estate

The Impact of Fed Rate Hikes on Homeowners

Fed RateOn Wednesday, the Federal Reserve raised its short-term interest rate by a quarter percentage point, a move that is most likely to impact home equity lines of credit (HELOCs) immediately. The rate hike, that was widely anticipated by the industry, come on the back of a strengthening labor market and an economy that has been growing at “a solid rate,” according to a statementreleased by the Fed. The increase points to a target range of 1.75 percent to 2 percent federal funds rate, while “supporting strong labor market conditions and a sustained return to 2 percent inflation.”

The statement also pointed to at least two more rate hikes during the year, which will bring the total number of rate increases to four in 2018.

According to Sam Khater, chief economist at Freddie Mac, the Fed rate hikes are less likely to impact long-term mortgage loan borrowers this time around. “The Federal Reserve announced their decision to raise the federal funds rate by 25 basis points,” he said. “One thing to point out is that there are fewer consumers today whose debt is tied to short-term rates, and because the majority of consumer debt is from mortgages, this means the recent short-term rate hikes will be less impactful than what was seen in the mid-2000s.”

However, the impact of these hikes is most likely to be felt on HELOCs immediately. “With the Fed increasing the federal funds rate, the interest rates on credit cards and HELOCs will rise within a billing cycle or two,” said Holden Lewis, Research Analyst at NerdWallet.

Since adjustable rate mortgages (ARMs) and HELOCs are based on short-term rates, they’re most likely to get impacted immediately according to Tendayi Kapfidze, Chief Economist at LendingTree. “The prime rate [for these loans] is a bank lending rate set as a spread to the Fed funds rate,” Kapfidze explained. “It will increase with the Fed hike, and since most HELOCs are tied to this rate, borrowers will see immediate increases in their interest rates.”

An analysis by NerdWallet indicated that the central bank had raised short-term rates twice so far this year for a total of half a percentage point. “But the average rate on the 30-year fixed rate mortgage has gone up more than that. It has risen almost three-quarters of a percentage point,” Lewis said. “This larger rise in mortgage rates is a sign that mortgage lenders expect the inflation rate to settle at a higher level over the next few years. Meanwhile, the Fed is expected to keep raising the federal funds rate to capture and hold the inflation rate near its target of 2 percent.”

Thus homebuyers looking for a mortgage for the first time are likely to be impacted too. “Homebuyers who have been able to take advantage of the previous uncertainty over rates to lock lower mortgage rates are likely to be satisfied with their decision,” said Danielle Hale, Chief Economist, Realtor.com.

However, according to Lewis, homebuyers shouldn’t rush in to buy homes because of this hike in interest rates. “Interest rates on auto loans and mortgages have been going up, responding to market forces,” he said. “Even if rates continue to rise, that’s not a reason to rush into ownership of a car or home before consumers are ready.”

Posted on June 15, 2018 at 1:16 PM
Guy Arnone | Category: Real Estate

Industry Sounds Off on Passage of Dodd-Frank Reform Bill

The House of Representatives on Tuesday voted in favor of S. 2155, the Economic Growth, Regulatory Relief and Consumer Protection Act. The bill seeks to evolve and streamline regulations put in place by the 2010 Dodd-Frank Act. The final vote in the House was 258-159.

“This is a moment years in the making, and I thank my colleagues in the Senate and the House of Representatives for their partnership and contributions to this effort over the years,” said Sen. Mike Crapo (R-ID), Chairman of the Senate Banking Committee. “This step toward right-sizing regulation will allow local banks and credit unions to focus more on lending, in turn propelling economic growth and creating jobs on Main Street and in our communities. This is an important moment for small financial institutions, small businesses, and families across America.”

Jim Nussle, President and CEO of Credit Union National Association, said in a statement, “From the moment a group of bipartisan Senators unveiled this bill, credit unions told them loud and clear that this is an essential piece of regulatory relief legislation that will improve access to mortgage lending, real estate loans, and other products and services, while putting focus on senior abuse and cyberthreats.”

“With the passing of this legislation, millions of consumers who were underserved by the current mortgage finance system may soon have a fairer shot at the American dream of sustainable homeownership. Today’s models are more predictive and more inclusive and they should be put to work. We thank the members of Congress for recognizing this problem and seizing on an opportunity to create a better system,” said Barret Burns, President and CEO of VantageScore Solutions. “We look forward to working with all the stakeholders to ensure that a future marketplace is fair, inclusive, and fosters competition.”

Not everyone welcomed the bill’s passage, however. Center for Responsible Lending (CRL) Senior Legislative Counsel Yana Miles said in a statement, “This bill puts out a welcome mat for many of the same reckless financial practices that caused the Great Recession. The bill increases the risk of another bank bailout, facilitates lending discrimination against communities of color, and weakens key consumer protections in the mortgage market—which was the epicenter of the 2008 economic collapse.”

S. 2155 was advanced by the Senate in mid-March, by a vote of 67-31, after several weeks of debate, amendments, and negotiation. The bill then passed back to the House, who had previously voted on a different Dodd-Frank reform bill prior to the Senate’s modifications.

The bill enacts numerous reforms and changes regulations pertaining to lenders. One of the primary changes was increasing the threshold for enhanced regulatory standards from $50 billion to $250 billion, a change designed to exempt some smaller and mid-sized banks from regulations that would still apply to the larger banking entities. The affected regulations pertain to capital and liquidity rules, risk management standards, and stress testing requirements, among other things.

Former Sen. Barney Frank, one of the authors of the Dodd-Frank Act, told Scotsman Guide in March, “I think [the asset threshold] should be $125 [billion to trigger FSOC oversight]. So, I would vote against it on those grounds. I would hope to try and change it. But, as far as [non-qualified] mortgages are concerned, I think allowing the smaller banks to make those loans as long as they keep them in portfolio is a perfectly good idea.”

The bill also exempts banks with less than $10 billion in assets from the Volcker Rule, which limits risky trading by U.S. banks, and dials back restrictions on small and regional banks when it comes to restrictions on mortgage lending.

Sen. Elizabeth Warren (D-Massachusetts), who has been a longtime opponent of weakening Dodd-Frank, said of the Senate bill, “We’ll be paving the way for the next big crash. It’s time for the rest of us to fight back and demand that Washington work for us, not the big bank lobbyists.”

The bill did have plenty of Democratic defenders in the Senate, however, several of whom argued that the reforms could help community banks flourish and help revitalize rural economies. Sen. Heidi Heitkamp (D-North Dakota), a supporter of the legislation, said, “When you don’t respond to these kinds of legitimate concerns from small lenders, there’s a resentment to the overall policy. We tend to throw the baby out with the bathwater with that kind of frustration.”

Posted on May 22, 2018 at 10:39 PM
Guy Arnone | Category: Real Estate

Homeownership Is Becoming Much Pricier

With inventory levels at record lows, strong buyer demand prompted home prices to rise at a faster pace in the first quarter of this year, according to the latest report by the National Association of REALTORS®.

The national median existing single-family home price in the first three months of this year was $245,500. That is up 5.7 percent compared to a year ago.

Further, single-family home prices rose in 91 percent of the measured markets in the first quarter—162 out of 178 tracked metro areas, according to NAR. Fifty-three metro areas, or 30 percent, posted double-digit increases, which is up from 15 percent in the fourth quarter of 2017.

“The worsening inventory crunch through the first three months of the year inflicted even more upward pressure on home prices in a majority of markets,” says Lawrence Yun, NAR’s chief economist. “Following the same trend over the last couple of years, a strengthening job market and income gains are not being met by meaningful sales gains because of unrelenting supply and affordability headwinds.”

Real estate professionals in areas with strong job markets are reporting that consumers are getting frustrated, Yun says. “Home shoppers are increasingly struggling to find an affordable property to buy, and the prevalence of multiple bids is pushing prices further out of reach,” he adds.

At the end of the first quarter, 1.67 million existing homes were available for sale, which is 7.2 percent below the number of homes for sale in the first quarter of 2017.

As home prices rise, more consumers are getting priced out of the market, even though their incomes are rising too. The national family median income increased to $74,779 in the first quarter. However, housing affordability fell from a year ago due to rising mortgage rates and increasing home prices, NAR reports. To buy a single-family home at the national median price, a buyer making a 5 percent down payment would need to earn an income of $55,732; a 10 percent down payment would require an income of $52,779; and a 20 percent down payment would need a $46,932 income, NAR reports.

“Prospective buyers in many markets are realizing that buying a home is becoming more expensive in 2018,” Yun says. “Rapid price gains and the quick hike in mortgage rates are essentially eliminating any meaningful gains buyers may be seeing from the combination of improving wage growth and larger paychecks following this year’s tax cuts. It’s simple: Homebuilders need to start constructing more single-family homes and condominiums to overcome the rampant supply shortages that are hampering affordability.”

The five priciest housing markets in the first quarter were San Jose, Calif. ($1,373,000—the median existing single-family home price); San Francisco-Oakland-Hayward, Calif. ($917,000); Anaheim-Santa Ana-Irvine, Calif. ($810,000); urban Honolulu ($775,500); and San Diego-Carlsbad, Calif. ($610,000).

On the other spectrum, the five lowest-cost metros in the first quarter were Decatur, Ill. ($73,000); Cumberland, Md. ($86,200); Youngstown-Warren-Boardman, Ohio ($91,300); Elmira, N.Y. ($100,800); and Binghamton, N.Y. ($103,000).

Source: National Association of REALTORS®

Posted on May 14, 2018 at 10:19 PM
Guy Arnone | Category: Real Estate

Foreclosure Starts on the Rise

Foreclosure starts rose 12 percent from February to a total of 52,100 in March as later-stage hurricane-related delinquencies began to roll over into active foreclosure starts. This, according to the First Look report on Mortgage performance released by Black Knight on Thursday. The report noted that over two-thirds of these foreclosure starts were in hurricane-impacted areas of Texas and Florida. Foreclosure starts continued to show a decline of 13.6 percent on a year-over-year basis, the report said.

Despite this uptick, national delinquency rates were pushed to a 12-month low of 3.73 percent, in March on the back of seasonal effects and continued improvements in hurricane-related delinquencies according the report.

Delinquencies declined 13 percent during March, which is typically a calendar-year low for delinquencies. The impact of the tax bill was also felt as many borrowers used refunds from their tax filings to bring their mortgages current. The report noted that serious delinquencies fell by 65,000, and by nearly 20,000 in areas impacted by the hurricanes last year.

Nationally, though, active foreclosures declined by 10,000 and were at the lowest level seen since late 2006, the report indicated, with only 321,000 loans in active foreclosure during the month.

The report noted that the number of properties that were 30 or more days past due, but not in foreclosure fell 286,000 to around 1.9 million. Properties that were 90 or more days past due but not in foreclosure declined 65,000 from February to 632,000 in March. Pre-sale inventory of properties in foreclosure also fell by 10,000 from February to 321,000. The number of properties that were in foreclosure fell by 296,000 to around 2.2 million in March.

Mississippi, Louisiana, Florida, Alabama, and West Virginia were the top five states by non-current percentage, while, North Dakota, Minnesota, Washington, Oregon, and Colorado were in the bottom five category.

Posted on April 19, 2018 at 12:09 PM
Guy Arnone | Category: Real Estate

What to Consider When Selling Your Home in a Rising Rate Environment

There are many economic variables to consider when selling your home when interest rates are rising. If that’s the only changing economic variable, you’re generally going to see a negative impact on both home sales and home prices. This means as interest rates rise, the buyer pool for your home is going to shrink.

In 2008, the Federal Reserve set rates at 0.25 percent because of the recession and the lack of buyer confidence or demand. Since then, buyer confidence and buyer demand have risen. In December 2015, rates climbed to 0.5 percent and continued to rise to where they are today at 1.5 percent. The Fed has noted rates will rise to 2 percent in 2018 and then 3 percent by 2020.

What Happens to the Ability to Sell Your Home With These Rises in Interest Rates?
If interest rates rise 1 percent and all other economic factors remain the same, purchasing power for homebuyers will decrease by just over 11 percent; therefore, every quarter-percent (0.25 percent) rise of interest rates reduces homebuyer purchasing power by 3 percent.

That means for a home purchase of $300,000, a 1 percent interest rate rise reduces buying power to just under $267,000. So, someone who potentially may have been able to purchase your home may no longer have the buying power to do so. This creates a smaller buyer pool and less demand for your home. It’s also likely to increase supply as fewer people are able to purchase homes.

If mortgage rates rise, it becomes more probable for indecisive buyers to rush into the market, and the short term will likely see a decent boost; however, it could add extra pressure if rates continue to rise without leveling out.

While interest rates play a role in the housing market, there are a variety of personal and economic factors to consider, as well.

What Other Economic Factors Play a Role?
Supply and demand play crucial roles in determining the movement of home prices. If supply goes up, home prices go down. If supply goes down, home prices will probably go up. If demand increases, home prices mostly likely will as well; however, if fewer people are looking to buy homes, then prices will most likely decrease. As a seller, these are important factors to consider when putting your home on the market.

The sale of new homes is another factor to consider alongside rising interest rates because supply and demand will always play a factor in the home-buying process. Supply increases when new homes are created. Assuming that interest rates don’t rise too rapidly, paying attention to new-home inventory levels will give you an indication of what to expect as a seller.

Monthly income, as it relates to monthly mortgage payments, is a more important variable to gauge than interest rates alone. Your debt-to-income ratio plays a larger factor in your ability to qualify for a mortgage than interest rates alone. When monthly income rises, your ability to absorb higher interest rates does, as well. This means that as long as people are making more money, they’ll also be able to pay off any increase in debts.

When the real estate market crashed in 2007-2008, monthly payments of principal and interest were nearing 25 percent of the U.S. median family monthly income. Even with a rise in interest rates, Americans are currently seeing the highest monthly median income in the last 35 years. Because of this, the percentage of monthly income going toward monthly payments is still well below levels that analysts consider dangerous.

Overall, we seem much more hesitant to take out mortgages than we have been in the past.

One of the largest surprises is the percentage of all-cash transactions for home purchases. Even with interest rates at historic lows, the percentage of all-cash transactions is higher than normal because we’re more cautious about taking on debt than we have been in recent decades.

High stock market valuations allow people to diversify their percentage of assets, cash out and reinvest in real estate to keep their portfolio balanced.

The number of distressed properties is a result of a strong job environment. This allows folks to pay their mortgages without defaulting, while also helping to keep prices up even with a rise in interest rates.

While interest rates play a large factor in selling your home for top dollar, they’re in no way the only deciding factor. All of the factors mentioned above should be taken into consideration before you rush into selling your home because of high interest rates.

Posted on April 9, 2018 at 1:27 PM
Guy Arnone | Category: Real Estate

Confidence in housing u-turned in February!

Confidence in housing u-turned in February in the Fannie Mae Home Purchase Sentiment Index® (HPSI), with the HPSI overall posting 85.8, 3.7 percentage points lower than the month prior and 2.5 percentage points lower than the year prior.

The backtrack was caused by converging influences, says Doug Duncan, chief economist and senior vice president at Fannie Mae.

“Volatility in consumer housing sentiment continued into February, with the new tax law beginning to impact respondents’ take-home pay and the stock market creating negative headlines due to early-month turbulence,” Duncan says. “Additionally, consumers’ expectations for higher mortgage rates suggest that consumers expect the Fed to hike rates a few more times in 2018. We will continue to track how consumer housing attitudes trend in the coming months as these various market forces play out.”

In February, the share of homebuyers surveyed for the Index who believe now is a good time to buy fell five percentage points to 22 percent, while the share of sellers who believe now is a good time to sell fell two percentage points to 36 percent. The share of those who believe home prices will go up fell seven percentage points to 45 percent.

The HPSI is derived from Fannie Mae’s National Housing Survey® (NHS).

Posted on March 29, 2018 at 2:06 AM
Guy Arnone | Category: Real Estate

Fannie Mae Predicts Strong Economy Into 2018

Fannie Mae is predicting a robust economic growth for this year, despite a projected slowdown during the first quarter
Fannie Mae is predicting a robust economic growth for this year, despite a projected slowdown during the first quarter.
According to the Fannie Mae Economic and Strategic Research (ESR) Group’s March 2018 Economic and Housing Outlook, the full-year 2018 forecast of real GDP growth by one-tenth to 2.8 percent, while the full-year 2019 forecast by two-tenths to 2.5 percent. Fannie Mae also downgraded its first quarter forecast from 2.7 percent to 2.2 percent, blaming the drop on slowdowns in housing activity and business investment plus what it described as “lackluster consumer spending.”
Looking forward, the ESR Group raised potential red flags—most notably, “including the potential for aggressive monetary tightening from the Fed and a further escalation of trade tensions following the recent tariffs placed on steel and aluminum imports”—and it also predicted a rate hike will occur during this week’s meeting of the central bank’s Federal Open Market Committee meeting, with two more rate hikes later in the year.
“We’re nearly a quarter of the way through 2018 and, as anticipated, the interplay between fiscal and monetary policy continues to frame the economic landscape,” said Fannie Mae Chief Economist Doug Duncan. “While we expect the economy to shift temporarily into a lower gear in the first quarter, the pace of growth should accelerate through the remainder of this year and into the next. Beyond the obvious downside risks, the economy appears poised to build on a foundation of strong consumer spending and a historically healthy labor market following the recent passage of the discretionary spending bill on top of tax reform.”
On the housing front, Duncan added that “home sales got off to a rough start in 2018, bottle-necked by the persistent challenges of the inventory shortage.” Nonetheless, he insisted that “strong home price appreciation continues to come as welcome news to existing homeowners.”
Posted on March 23, 2018 at 2:11 PM
Guy Arnone | Category: Real Estate

Millennial Housing Shutout

Home prices across the U.S. increased by 6.6 percent on a year over year basis in January 2018 according to the monthly CoreLogic Home Price Index released on Tuesday. On a month-over-month basis, the home prices rose 0.5 percent between December 2017 and January 2018.

The monthly report provides an early indication of home price trends and projects HPI levels for single-family homes excluding distressed sales and covers national, state, and metro level data such as home price indices, home price forecast and market condition indicators.

Nationally, the report forecasted a home price growth of 4.8 percent on an annual basis, while home prices were expected to remain flat between January and February 2018.

The effects of rising home prices are being felt the most in the affordable home segment, according to Frank Nothaft, Chief Economist at CoreLogic. “Entry-level homes have been in particularly short supply, leading to more rapid home-price growth compared with more expensive homes,” he said. “Homes with a purchase price less than 75 percent of the local area median had price growth of 9 percent during the year ending January 2018.”

Four states experienced double-digit increases in home prices in January according to the report. While home prices in Washington grew 12.1 percent, Nevada clocked a growth of 11.3 percent followed by 10.8 percent in Utah, and 10.3 percent in Idaho.

The data also indicated that half of the 50 largest metro areas covered by CoreLogic for this report were overvalued. The report said, 48 percent were overvalued, 14 percent were undervalued and 38 percent were at value.

“CoreLogic has identified nearly one-half of the 50 largest metropolitan areas as overvalued. Millennials who are looking to become first-time homeowners find it particularly challenging to find an affordable home in these areas,” said Frank Martell, President, and CEO of CoreLogic. “Our projections continue to show tightness in the entry-level market for the foreseeable future, which could further prevent millennials from purchasing homes in 2018 and 2019, even as much of that generation reaches its prime home-buying years.”

Of the largest metros that showed a price rise, Las Vegas led the way in home price rise with a growth of 11.7 percent year over year, followed by San Francisco with a growth of 10.2 percent. Denver with 8.4 percent growth was followed by San Diego and Los Angeles that grew at 7.9 percent and 7.8 percent respectively.

Posted on March 14, 2018 at 10:40 AM
Guy Arnone | Category: Real Estate

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