Tag Archives: housing market

Immigrants might save the American housing market?

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The real estate market may be sluggish but some data suggests immigrants offer hope with their desires to own homes:

But in some groups the dream, at least of homeownership, is alive and well. During the past two decades, immigrants have accounted for 27.5 percent of all household growth, according to the Harvard Joint Center for Housing Studies. When it comes to growth among younger generations, the foreign-born population is even more significant, accounting for nearly all the household growth for those under the age of 45.

Last year, immigrant households made up 11.2 percent of owner-occupied housing according to the JCHS—that’s up from only 6.8 percent in 1994…

The exact rate of homeownership varies among different immigrant groups, but overall the share of immigrants who own homes is growing. In 2000, the rate of homeownership among immigrants stood at 49.8 percent, according to a study by the Research Housing Institute of America. By 2010 the rate was 52.4 percent, and by 2020 that number will climb to about 55.7 percent, the study predicts. In the third quarter of 2014 the overall homeownership rate in the U.S. was 64.4 percent, according to the Census Bureau.

There are several reasons behind the growth rate in homeownership for immigrants, but part of the impetus may be that many immigrant populations are less cynical about the idea of homeownership than their American-born counterparts. “They view homeownership as a piece of the rock. It’s a benchmark of being settled,” says Dowell Myers, a professor at the Sol Price School of Public Policy at USC. “They view homeownership as the American Dream and they buy into that.”…

Even more compelling are the possibilities for homeownership among the children of immigrants. “When you look at the children of immigrants they actually exceed the native born on a lot of measures: on income, on education, on homeownership,” says Masnick.

Is there some irony here if it is conservative and older whites and immigrants who buy into the American Dream of owning a home the most? Of course, they may not be buying homes in the same places given ongoing patterns of residential segregation as well as different preferences of urban, suburban, and rural living.

Lowest percentage of first-time homebuyers since 1987

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First-time homebuyers are having a difficult time participating in the real estate market:

Just 33% of primary residences sold this year were purchased by first-time buyers, down from 38% last year to the lowest level since 1987, the National Association of Realtors reported Monday.

The NAR says that the first-time-buyer share of home sales has typically hovered around 40% since 1981.

The headwinds facing young buyers are well known: higher student debt, rising rents and a weaker job market have made it harder for would-be buyers to save for a down payment and qualify for a mortgage, particularly in a lending environment where banks are much less willing to overlook credit blemishes or spotty incomes…

The NAR survey also found that people are staying in their homes longer than in the past. The median age of tenure–that is, the amount of time a typical homeowner stays in one house–rose to 10 years in the most recent survey, from six years in 2007.

This isn’t just about not having enough cheaper homes at the lower end of the market; this is also about getting people into the patterns of buying homes and then moving to bigger homes as their families and incomes grow. While there is still evidence that many young Americans want to purchase homes, being able to actually participate is a crucial first step.

Luxury building boom continues in New York City

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The housing market may still be somewhat sluggish throughout the country but the luxury market continues to grow in NYC:

New York City developers will spend 60 percent more on new homes this year, while adding only 22 percent more units, a sign of the market’s tilt toward luxury condominiums, the New York Building Congress said.

Spending on new housing will reach $10.9 billion, the most in records dating to 1995 and $4.1 billion more than last year’s total, the trade group said in a report released today. The number of homes that money will build is 22,500, up from 18,400 in 2013.

A record wave of ultra-luxury condo projects planned or under construction in Manhattan accounts for the “wide disparity” between costs and unit production, said Frank Sciame, chairman of the New York Building Foundation, the trade group’s philanthropic arm…

Even as construction spending increases, the number of homes produced still falls far short of the 30,000-plus built annually from 2005 to 2008, the building congress said. In 2008, the city gained 33,200 units at a cost of $5.9 billion.

This echoes the larger housing market in the United States: while the market for cheaper or more affordable homes is slow, the luxury market still has plenty of builders and buyers. And we are talking about New York City, one of the places to be for the wealthy and influential.

The article also hints that New York Mayor Bill de Blasio promised lots of affordable housing in the next ten years. Having more luxury condos doesn’t necessarily preclude also building cheaper units but the statistics above suggest overall building is down. What big-city mayor could truly turn down or fight luxury projects? Cities desperately need such money even as they need to find ways to help promote housing for more average residents.

Better economy = more teardowns

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One side effect of an economic recovery may just be more teardowns:

For some historic preservationists on the North Shore, the economic downturn in 2008 had a silver lining, bringing a lull in tear-downs and new-home construction that gave scores of vintage properties a reprieve from the wrecking ball.

But six years later, officials in north suburban Winnetka tasked with preserving historic homes say that reprieve has clearly ended. They report that demolition permits have nearly doubled, with 36 issued in 2013, up from 19 in 2009…

In addition, [Highland Park] nearly tripled the number of demolition permits issued in recent years — 27 in 2013, up from 10 in 2009, officials said.

Granted, these are pretty wealthy and desirable suburbs, places that still have teardowns when the overall economy is bad. But, this article does highlight the dilemma for preservationists: more money in the real estate market means more people can purchase teardowns in desirable neighborhoods. Does that mean preservationists should wish for a less heated housing market?

Changes in foreclosures, single-family rental market

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One housing expert discusses the state of the housing market in regards to foreclosures and single-family rentals. First, foreclosures:

Yes, the pig has finally made it almost through the python. At the peak of the crisis, we were looking at about 14.5 percent of all loans being either delinquent or in the process of foreclosure. In a “normal market” that number is between 4 and 5 percent.

Right now, we’re roughly at 7.5 percent of all loans, so we’re down by half from the peak but almost twice as high as normal. In the next two to three years, that number should work its way down to the norm…

We’re seeing pretty much historically unprecedented loan performance — historically speaking, about 1percent of loans will be in foreclosure in a given year, and now we’re looking at about half of that…

And this suggests that we probably have over-tightened credit. Not that we want more people in default, but we know that people are having a hard time getting loans. Loan standards are just too tight.

Second, changes to the rental market:

Before the Blackstones of the world, 95 percent of single-family rentals were owned by people who owned five or fewer properties. It was a cottage industry, literally.

What I’ve seen happening is, these little guys are becoming the property scouts for the big investors…

They’ll buy the houses, do the repair work and flip them to the Blackstones. They’ve moved from being landlords to being flippers.

Some interesting changes with continued fallout from the bursting of the housing bubble. And it is still hard to know whether these changes are “the new normal” or the market could overheat again as we are eight years or so from the peak of the bubble.

Nearly 50% drop in first-time buyers leads to bigger American homes

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New American homes are now over 2,600 square feet and this is partly because there has been a big drop in first-time buyers:

The economist says first-time buyers accounted for only some 16% of last year’s new-home sales, or about half of their usual roughly 30% market share.

At the same time, he says, builders are finding bank loans, developable land and experienced construction workers in short supply. “You had a well-oiled construction industry [during the early 2000s housing boom], but when there was a downturn, many people left,” Melman says.

The expert says a shift to high-end homes has historically happened after every U.S. recession or housing bust and lasted for a few years.

So he expects newly built homes to keep getting larger, fancier and costlier for a while — albeit at a slower pace over time.

More evidence that the numbers about the increasing size of American homes is misleading. On one hand, it looks like the American appetite for more square feet continues unabated; household sizes shrink over time but homes keep getting bigger. Have to have room to spread out or to store all our stuff. Yet, the housing market has changed quite a bit since the early 2000s where the above story might have been more accurate. Today, home sizes are driven by a market with fewer first-time buyers, builders who are looking for higher-end profits, and lenders who have pulled back a bit and restricted lending to people with plenty of wealth.

Unclear how much student debt is holding back the housing market

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The sluggish housing market is likely not helped by the amount of student debt held by young adults:

[T]he Federal Reserve Bank of New York reports today that in 2013, student debtors between the ages of 27 and 30 were less likely to own a home—or, specifically, to have a mortgage—than their peers who were student-debt free. Homeownership rates have fallen fast among all young adults since the recession. But, as shown below, they’ve dropped most precipitously among those who borrowed for school.

6a01348793456c970c01a511b13bd1970c450wi_1Federal Reserve Bank of New York

There’s one key detail this graph leaves out, however, which the Fed shared in a separate report from early last year (and which I’ve written on before). It turns out that, at the end of 2012, borrowers who were current on their student loan payments were actually more likely to take out a mortgage than other young adults. Borrowers who were delinquent on their student loans, however, took out barely any mortgages at all. In other words, young people who already couldn’t handle their debt simply weren’t in the market for houses.

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Federal Reserve Bank of New York

A key point: having college debt doesn’t completely stop mortgage originations. So, reducing college debt (and look at the median, not the average) could help free up the housing market but it isn’t the only problem.

I wonder if there isn’t another way to think about this: more young Americans are willing to trade a college degree for homeownership before they are 30. This could be due to a variety of reasons including earning potential due to a college degree but also a decreased interest in owning a home as opposed to accomplishing other goals like living in an exciting place or establishing themselves in a career. In other words, this issue may not really be about college debt holding people back but rather about the relative interest young adults have in owning a house.

US homeownership rate drops in first quarter of 2014

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The homeownership rate in the United States dropped again in the beginning of 2014:

The homeownership rate in the U.S. declined to the lowest in almost 19 years as rising property prices and mortgage rates held back demand.

The share of Americans who own their homes was 64.8 percent in the first quarter, down from 65.2 percent in the previous three months, the Census Bureau said in a report today. The rate is the lowest since the second quarter of 1995, when it was 64.7 percent…

“The homeownership rate is held back by slow job growth, tight mortgage credit and declining affordability,” Jed Kolko, chief economist of San Francisco-based property-listing service Trulia Inc., said in an interview before the report was released. “We’ll see it stay around this level for some time.”

Sam Zell, chairman of apartment landlord Equity Residential (EQR), said yesterday that the rate will fall to as low as 55 percent because more Americans are choosing to rent as they postpone getting married and having children. As of 2010, about 54 percent of adults were married, down from 57 percent a decade earlier, according to Census Bureau data.

Interesting to hear economists and those in real estate suggest there are a variety of social factors affecting homeownership. Beyond the troubles of the housing market, the issues include family formation and possibly different preferences among younger Americans for where they want to live and how they want to do it.

Another interesting tidbit from this article: the homeownership peak was June 2004. This predates the housing crash by several years and is now almost 10 years ago.

March existing home sales: slowdown for cheaper homes, increase for more expensive homes

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The March existing housing reports showed a slowdown in one part of the housing market and a rise at the other end:

Sales of homes under $100,000 fell nearly 18% from March 2013 and those in the $100,000-$250,000 range fell about 10%. But sales of homes over $1 million rose almost 8%, according to supplemental data on the NAR website. The median existing-home price — half were below the median and half above — was $198,500.

The West is seeing the sharpest plunges in sales of lower-priced homes and has been for some time. Compared with a year earlier, March sales of under-$100,000 homes fell 45% in the West, 18% in the Midwest, 16% in the South and only 3% in the Northeast.

What’s behind this trend? Inventories at the lower end of the market are tighter than a couple of years ago as the number of bargain-priced foreclosures and other distressed properties for sale has dwindled. Many of those homes were snapped up by investors, who bid up prices, accelerating that segment’s rebound from the housing bust lows.

This is a continuation of a bifurcated housing market after the economic crisis: people with financial means are able to buy and sell while those at the bottom end with fewer resources and less available inventory can’t do as much. This continued sluggish bottom of the market affects a lot of sectors including employment (whether people have the mobility to chase available jobs), personal finances (plenty of people stuck in homes in which they owe a lot of debt or at the least can’t make any money from), and economic activity and jobs (in construction, real estate, banking, etc.).

Really low mortgage rates may be limiting mobility

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Here is how low mortgage interest rates may be restricting the mobility of lots of homeowners:

But what does the uptick mean for those homeowners who did take advantage of ultralow rates? According to researchers at DePaul University’s Institute for Housing Studies, it has created a new population of homeowners who are seemingly stuck in their homes.The housing crisis created a large class of people who couldn’t sell their homes because they were underwater, owing more on the mortgages than the properties were worth. But in addition, another class of homeowner has formed, those who took advantage of the low rates and would have to give them up if they sell their homes.

Compounding the increase in interest rates is that the home price gains seen in Chicago and other markets last year are moderating. As a result, homeowners who refinanced, and those who bought homes at the low rates, could see smaller home price appreciation going forward. Yet even if they buy a house for the same price as the one they are selling, it will cost them more because of the higher interest rates. That scenario could affect their mobility and, as a result, the overall number of homes that change hands, the study concluded.

Similar scenarios have played out in the past, according to the researchers, who noted that the average monthly rate for a 30-year, fixed-rate mortgage rose from 10.1 percent in November 1978 to 17.8 percent in November 1981. An earlier study of that period found that every 2 percentage-point increase in rates lowered household mobility by 15 percent.

Generally, lower rates are seen as good things for homebuyers as it gives them more purchasing power. However, if rates then go back up, having a lower interest rate may not help in the step up to the next more expensive house. It will take some time for the market to balance out. Although it is unlikely there will be such a swing like in the late 1970s/early 1980s, the housing market is still quite delicate in many places and even small changes could lead to bigger disruptions.

All that said, higher rates of mobility are assumed in the United States. In order to have a thriving economy, workers need to be able to move to where they can find economic opportunities and moving up the ladder of houses (starter home, family home, retirement home, etc.) keeps the housing industry going.