Real Estate Demand

Rising Rents Pushing Millennials to Buy

This year, the typical spring buyer is on the hunt for a three bedroom, two-bathroom home with a garage and up-to-date kitchen, according to a new survey released from realtor.com. The survey also found that family needs and rising rents are motivating millennials to get into the market, while 55+ buyers are looking for privacy and comfort in their new home.

"Although record-low inventory and high prices make this housing market unique, some classic features still top most shoppers' wish lists," says Danielle Hale, chief economist for realtor.com. "At the same time, we found some clear differences in priorities. For instance, older buyers are concerned with privacy and being able to age comfortably, while millennials place more emphasis on family needs, stability and personal expression."

Based on an online survey of more than 1,000 active buyers conducted in early March by Toluna Research, the survey provides insight into both the most sought-after homes as well as the motivations underpinning what shoppers are looking for.

Majority of buyers want space, multiple bathrooms and a garage
The survey found that 44 percent of all respondents said they are looking for a three-bedroom home, and 93 percent of respondents want at least two bathrooms. Additionally, 27 percent of all buyers rate a garage as one of the most important home features, ahead of an updated kitchen (24 percent) and open floor plan (20 percent).

Older buyers want privacy & comfort; millennials favor family & self-expression
More than 20 percent of buyers 55 years and older said that privacy – having a space solely of their own – was their main goal for purchasing a home. That was followed by their motivation for physical comforts (18 percent) and stability (5 percent).

Fulfilling family needs took the top spot for millennial buyers (17 percent), followed by stability (14 percent) and personal expression (13 percent); only 12 percent of buyers younger than 55 cited privacy as their chief priority. However, 9 percent of 35- to 54-year-old buyers and 6 percent of 55+ cited personal expression as a main goal for purchasing a home.

For millennials, the rent is too high
Twenty-three percent of buyers between 18 and 34 years old reported rising rent as a trigger for their desire to purchase a home – more than any other option. This corresponds with steep increases in rents across the country in recent years, especially in many high-cost urban areas that have become magnets for millennials. HUD data shows that rents were up in 85 of the top 100 metro areas, including 9 metros where rents rose by double-digit percentages from a year ago.

Millennials like contemporary and colonial homes; older buyers prefer ranches
Among millennials who expressed a home-style preference – 11 percent didn't – contemporary and colonial homes took the top spots, each favored by 10 percent of respondents. On the other hand, ranches are the most popular home style for buyers 55 and older, favored by 28 percent, followed distantly by contemporary homes at 12 percent. Only 6 percent of millennials favor ranch homes.

What to Expect for "2018"

The housing picture is likely to improve in 2018. Why? Home prices are expected to climb, but not as fast.

Plus, more houses could be for sale toward the end of the year, giving homebuyers a greater selection to choose from, while homeowners will have more equity to borrow from.

Yet in other ways, 2018 might continue to be challenging, especially for homebuyers. Mortgage rates are likely to rise, reducing affordability.

Here are 10 housing and mortgage trends to expect in 2018.

1. Home prices decelerate

Good news for first-time homebuyers: Home-price appreciation is expected to cool down in 2018 after a torrid couple of years.

Home prices rose 6.3% in 2016, according to the Federal Housing Finance Agency. They're on track to exceed 6% in 2017, too. But for next year, the median forecast among six industry and lender groups is for a 4.1% increase in existing home prices nationwide.

Why the slowdown? One factor is home construction. Economists expect the construction of single-family houses to rise sharply in 2018, based on building permit applications. The median estimate has single-family housing starts rising about 8% in 2018, to roughly 912,500 new houses.

2. More homes for sale

Homebuyers are struggling to find houses for sale. The shortages are especially acute for the kinds of homes that first-time buyers tend to get. Among the reasons for the tight supply:

·Many baby boomers are content to age in their homes instead of downsizing

·Investors bought millions of homes after the housing bubble burst, and they're making too much money as landlords to sell

·Home builders make more profit from expensive houses than entry-level houses, so that's what they're constructing

But there's some hope for 2018: Realtor.com predicts that the housing supply pinch will begin to ease late in the year.

"It looks like we could get to a point where we're seeing growth in inventory sometime in the fall of 2018," says Danielle Hale, chief economist for Realtor.com.

3. Home sales could rise

Resales of existing homes are expected to rise modestly in 2018. The median estimate is that existing home sales will rise 2.5%, to 5.6 million units.

Meanwhile, sales of new homes are expected to rise a median of 7%, to 653,500 newly built single-family houses.

According to Realtor.com, cities in the South will show the most sales growth in 2018. Hale says she expects 6% existing home sales growth, particularly in markets such as Dallas; Tulsa, Oklahoma; Little Rock, Arkansas; and Charlotte, North Carolina. Hale says those places are not as "regulation constrained," they have strong regional economies and developers have plenty of vacant land to build on.

4. Mortgage rates head up

Mortgage rates are expected to rise in 2018. CoreLogic, a data provider for the real estate industry, averaged six forecasts of mortgage rates, arriving at a consensus view that the 30-year fixed will average 4.7% in December 2018. In November 2017, the 30-year, fixed-rate mortgage averaged 4.07%.

"Not only are mortgage rates higher, but mortgage rates will be at the highest level since 2011," Nothaft said at the Urban Institute symposium. "So we're looking at an environment, going forward, where this era of cheap mortgage rates will largely be behind us."

Interest rates are notoriously resistant to prediction, though. At the beginning of 2017, most people expected mortgage rates to rise steadily throughout the year. And they did rise - for a few weeks. The average 30-year fixed peaked in mid-March 2017 at 4.58%, according to NerdWallet's daily survey. Then it declined, dipping slightly below 4% a few times in the summer, before moving upward slightly in the fall.

5. Affordability declines

If, as expected, home prices and mortgage rates go up in 2018, homes will be less affordable.

For example, if mortgage rates rise to 4.7% toward the end of 2018, and the median price of existing homes rises by 4.1%, then monthly mortgage payments for a typical house would rise substantially.

But according to an Urban Institute analysis, middle-class families in much of the country still have some financial wiggle room if rates and prices rise in 2018. Most home buyers don't appear to stretch to the limits of affordability, the Urban Institute wrote.

6. More equity, more HELOCs

As home values rise, homeowners gain equity. And banks expect millions of homeowners to borrow against that equity.

About 1.6 million homeowners are predicted to get new home equity lines of credit in 2018, a 16% increase over 2017, according to a recent TransUnion study. The credit bureau says 67% of homeowners have enough equity to get HELOCs, and 80% of those borrowers have high credit scores.

TransUnion forecasts that 10 million homeowners will get HELOCs from 2018 through 2022, double the number of new lines of credit in the five years before that.

7. Security headaches continue

Thieves are stealing down payments from homebuyers by combining email hacking with wire fraud. And there's no sign of it slowing.

Complaints of this type of wire fraud skyrocketed by 480% in 2016, according to the 2016 annual report (the latest available) from the FBI's Internet Crime Complaint Center. Lenders and title companies say the problem worsened in 2017, and that they fend off this form of fraud constantly.

The best way to avoid becoming a victim: When you receive emailed instructions for wiring money, call your agent to verify. The email may be a fake, designed to trick you into wiring money into a thief's account.

8. More options for people with credit issues

A few specialty lenders are focusing on nontraditional mortgages. For example, Angel Oak Mortgage Solutions in Atlanta targets the borrower 'who has had a life event, so they lost their house or had to file bankruptcy or things got really bad, but they've now got their feet back on the ground and they're ready to buy their next house,' says Tom Hutchens, the lender's senior vice president of sales and marketing.

Several lenders offer interest-only mortgages, and even loans with limited income documentation. These mortgages are dubbed 'non-QM' because they don't meet Fannie Mae's and Freddie Mac's plain-vanilla 'qualified mortgage' rules. One prominent non-QM lender, Impac Mortgage Holdings, plans to begin securitizing these loans early in 2018.

9. Lenders embracing automation

Mortgage lenders continue to pour money into automating the loan-application process. The best-known example is Rocket Mortgage by Quicken Loans. But Quicken isn't the only lender that embraces automation. Some lenders, such as loanDepot, cook up their own automation in-house, while software providers such as Blend and Roostify help large and small banks to automate applications. Now a few lenders want to use automation to guide borrowers to loan products that best suit them.

10. Tax reform could affect buyers and owners

Lawmakers were still working on tax reform as this article was being written. Preliminary House and Senate versions limited the number of home sellers who would benefit from the home capital gains exclusion, and they treated the mortgage interest tax deduction differently. It's too early to know how a final tax reform bill would affect home buyers and homeowners, but we will keep you posted.

New Tax Plan "Bad News for Homeowners and House Prices"

The U.S. Senate passed tax reform legislation over the weekend that the National Association of Realtors® (NAR) believes puts home values at risk and dramatically undercuts the incentive to own a home.

NAR President Elizabeth Mendenhall offered strong concerns over the bill and said Realtors will continue to work with members of the House and Senate as the process moves forward into a conference committee to reconcile differences between the two versions of the bills.

"The tax incentives to own a home are baked into the overall value of homes in every state and territory across the country," says Mendenhall. "When those incentives are nullified in the way this bill provides, our estimates show that home values stand to fall by an average of more than 10 percent, and even greater in high-cost areas."

Speaking for NAR, Mendenhall says that Realtors favor tax cuts done "in a fiscally responsible way," and that current efforts in Congress produce some winners. But "millions of middle-class homeowners would see very limited benefits, and many will even see a tax increase. In exchange for that, they'll also see much or all of their home equity evaporate as $1.5 trillion is added to the national debt and piled onto the backs of their children and grandchildren.

"That's a poor foot to put forward, but this isn't the end of the road," she adds. "Realtors will continue to advocate for homeownership and hope members of the House and Senate will listen to the concerns of America's 75 million homeowners as the tax reform discussion continues."

Root Causes for U.S.'s Depressed Homeownership Rate

Despite steadily improving local job markets and historically low mortgage rates, the U.S. homeownership rate is stuck near a 50-year low because of a perverse mix of affordability challenges, student loan debt, tight credit conditions and housing supply shortages.

That's according to findings of a new white paper titled, "Hurdles to Homeownership: Understanding the Barriers," released in recognition of National Homeownership Month at the recent National Association of Realtors® (NAR) Sustainable Homeownership Conference at University of California, Berkeley.

Led by a group of prominent experts, including NAR 2017 President William E. Brown, NAR Chief Economist Lawrence Yun and Berkeley Hass Real Estate Group Chair Ken Rosen, the conference addressed the dip and idleness in the homeownership rate, its drag on the economy and what can be done to ensure more creditworthy households have the opportunity to buy a home.

"The decline and stagnation in the homeownership rate is a trend that's pointing in the wrong direction, and must be reversed given the many benefits of homeownership to individuals, communities and the nation's economy," Brown said. "Those who are financially capable and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream." One of Brown's main objectives as president of NAR is identifying ways to boost the homeownership rate in a safe and responsible way.

The research was commissioned by NAR, prepared by Rosen Consulting Group (RCG). and jointly released by the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley Haas School of Business. It identifies five main barriers that have prevented a significant number of households from purchasing a home. They are:

Post-foreclosure stress disorder: There are long-lasting psychological changes in financial decision-making, including housing tenure choice, for the 9 million homeowners who experienced foreclosure, the 8.7 million people who lost their jobs, and some young adults who witnessed the hardships of their family and friends. While most Americans still have positive feelings about homeownership, targeted programs and workshops about financial literacy and mortgage debt could help return-buyers and those who may have negative biases about owning.

Mortgage availability: Credit standards have not normalized following the Great Recession. Borrowers with good-to-excellent credit scores are not getting approved at the rate they were in 2003, prior to the period of excessively lax lending standards. Safely restoring lending requirements to accessible standards is key to helping creditworthy households purchase homes.

The growing burden of student loan debt: Young households are repaying an increasing level of student loan debt that makes it extremely difficult to save for a downpayment, qualify for a mortgage and afford a mortgage payment, especially in areas with high rents and home prices. As NAR found in a survey released last year, student loan debt is delaying purchases from millennials and over half expect to be delayed by at least five years. Policy changes need to be enacted that address soaring tuition costs and make repayment less burdensome.

Single-family housing affordability: Lack of inventory, higher rents and home prices, difficulty saving for a downpayment and investors weighing on supply levels by scooping up single-family homes have all led to many markets experiencing decaying affordability conditions. Unless these challenges subside, RCG forecasts that affordability will fall by an average of nearly 9 percentage points across all 75 major markets between 2016 and 2019, with approximately 5 million fewer households able to afford the local median-priced home by 2019. Declining affordability needs to be addressed with policies enacted that ensure creditworthy young households and minority groups have the opportunity to own a home.

Single-family housing supply shortages: "Single-family home construction plummeted after the recession and is still failing to keep up with demand as cities see increased migration and population as the result of faster job growth," said Rosen. "The insufficient level of homebuilding has created a cumulative deficit of nearly 3.7 million new homes over the last eight years."

Fewer property lots at higher prices, difficulty finding skilled labor and higher construction costs are among the reasons cited by RCG for why housing starts are not ramping up to meet the growing demand for new supply. A concentrated effort to combat these obstacles is needed to increase building, alleviate supply shortages and preserve affordability for prospective buyers.

"Low mortgage rates and a healthy job market for college-educated adults should have translated to more home sales and upward movement in the homeownership rate in recent years," said Yun. "Sadly, this has not been the case. Obtaining a mortgage has been tough for those with good credit, savings for a downpayment are instead going towards steeper rents and student loans, and first-time buyers are finding that listings in their price range are severely inadequate."

Added Rosen, "A healthy housing market is critical to the overall success of the U.S. economy. Too many would-be buyers have been locked out of the market by the factors found in this study, and it's also one of the biggest reasons why economic growth has been subpar in the current recovery."

South Florida has an Affordable Housing Crisis!!

Rising property values are pricing many new workers out of South Florida and creating an affordable housing crisis, Palm Beach County officials and real estate experts said during a summit convened Wednesday to address the issue.

“This is the most serious public policy issue we are dealing with here in South Florida along with rising sea levels,” said Edward “Ned” Murray, associate director of the Metropolitan Center at Florida International University.

The statistics show the extent of the problem, he said. While housing prices continue to climb, incomes have not kept up.

Palm Beach County’s median home price of $327,000 is unaffordable to 75 percent of households. The median home price is $330,000 in Broward County, while the median price in Miami-Dade County $320,000.

Palm Beach County’s median gross rent of $1,900 is out of the reach of 80 percent of renters, according to Murray’s research. Average rent in Broward County is $1,800, which is unaffordable for 78 percent of renters. The situation is worse in Miami-Dade County, where an average rent of $2,175 is unaffordable for 89 percent of renters.

About 56 percent of Palm Beach County renters are considered to be burdened, meaning they spend more than 30 percent of their income on housing. Almost a third are severely cost burdened, meaning they spend more than half their income.

In Broward County, 59 percent of renters are considered to be cost burdened and almost a third severely cost burdened. Almost 62 percent of Miami-Dade renters are cost burdened and 35 percent are severely cost burdened.

College graduates and entry-level hires willing to relocate turn down job offers when they find out the cost of housing, Palm Beach County officials and business leaders said.

The school system is facing a shortage of teachers because they can’t make it on an educator’s salary, and some families are even left homeless, forced to sleep in cars or the woods, Palm Beach County Mayor Paulette Burdick said.

A combination of high housing costs and relatively low incomes made South Florida home to the highest percentage of cost-burdened renters in the country, according to a recent report by the Joint Center for Housing Studies of Harvard University.

South Florida is losing out to other metropolitan areas because of the high cost of housing, Palm Beach County Administrator Verdenia Baker said.

The county invests in education, but graduates are moving to cities where housing is more affordable, she said.

“They are moving to Houston, Texas,” Baker said. “They are moving to Tampa, Florida. That is the investment in Palm Beach County that does not yield a return.”

More than 500 elected officials, business leaders and housing experts convened at Palm Beach County Convention Center on Wednesday to consider solutions.

Proposals included building transit-orientated developments that would allow workers to lower their costs by tapping into mass transit, waiving building fees and granting tax incentives for workforce housing projects and allowing increased density for new developments with price-capped units.

One speaker said turning shipping containers into homes could be an innovative way to lower the cost of housing.

“Look at them like Lego blocks,” said Craig Vanderlaan, executive director of Crisis Housing Solutions. “You can have fun with them. … Millennials absolutely love this stuff."

Container homes have already started popping up in South Florida, and some are posted for rent on the home-sharing website Airbnb.

County officials will gather the recommendations made at the summit and present proposals for county commissioners to consider.