Aug302016
Are demographic changes helping or hurting housing?
The housing market sales doldrums we experience today is partly a result of the smaller Generation X hitting their prime homebuying years. Most anticipate a resurgence of housing when Millennials start buying homes in larger numbers.
Back in 1997 a demographic study shook the homebuilding industry when it said housing demand would crater and house prices would be depressed because Generation X was so much smaller than the Baby Boomers. As it turned out 1997 was the bottom of the market, and both sales and home prices rose dramatically in a 10-year run that ended with the Great Housing Bubble.
So much for demographics.
With such dramatic and high-profile misses, it’s difficult to put too much weight on a demographic study. These studies envision a world where demographics drive all change in the marketplace, and they ignore the fact that people adjust their behavior to suit the circumstances, and economies are far more robust than most imagine.
For example, during the middle ages the Bubonic plague wiped out a third of the world’s population — a catastrophic demographic event. With so many producers and consumers wiped out, the overall world economy contracted, but rather than resulting in a much lower quality of life for the survivors, the trade in luxury goods exploded. With fewer mouths to feed, less resources were devoted to food production, and at least for the rich, quality of life improved.
It’s very difficult to predict what will happen to the economy when the composition of large populations change. It’s doubly difficult to predict what will happen with specific segments of the economy because people will change their behavior to respond to new opportunities.
Demographic HomeMageddon Underway…Will Last Until at Least 2035
Wednesday, August 24, 2016
91% of all US home buying is done by those aged 20-69yrs/old, according to NAR data. In 2015, Millennials (20-35yrs/old) made up 35% of home purchases, Gen X (36-50yr/olds) bought 26%, Boomers (51-70yr/olds) 31%, and the Silent Generation (70+yrs/old) 9%. I’m no great fan of the NAR, but this makes basic sense as most homebuyers need an income to be homebuyers and most 70+yr/olds are retired and have the lowest average incomes of all the above groups.
These numbers also reflect the relative sizes of these age groups. People over 70 buy fewer homes because there are fewer people over 70 who are still alive.
Here’s the very big problem for residential real estate…the chart below shows that over 70% of all the population growth among potential home buyers (20+yrs/old) from 2017–>2030 will be among the 70+yr/olds (chart shows average annual growth for the two groups from 2000–>2016 (left) and 2017–>2030 (right)). This is simply unprecedented in US history.
Based on this data and nothing more, my first reaction is that the over-70 market is set to explode. While many in this group no longer work, they still have income, and many of them accumulated significant assets, and if they want to buy housing, they can pay cash.
To put it in a broader context, the chart below shows annual growth in the 20-69yr/old population (red line) vs. annual growth in the 70+yr/old population (blue line) since 1980. That unprecedented, impending crossover in the lines means everything for real estate and the economy in general.
The impending nosedive in the growth of potential buyers vs. surge in elderly (those more likely to downsize or out-right sell than buy) should be quite disconcerting considering:
This is where the analysis jumps the shark. Why would the elderly necessarily downsize or sell? Perhaps they will chose to age in place. They will respond to whatever opportunity the market presents them, and if they can’t sell to realize other dreams, they won’t. If homebuilders respond to this large increase in demand for over-70 housing, the homebuilders stand to profit.
- Home prices are at or near ’07/’08 bubble peaks meaning any new investments require far more cash down to achieve a positive cash flow
- Mortgage rates can effectively go no lower and a marginal increase is probable (unless the Fed reinitiates QE and implements NIRP)
- Present lending standards are far more stringent than during the ’07/’08 fog-a-mirror NINJA free for all
- The dollar is likely to continue appreciating making foreign buying continually more expensive…and less likely (unless the Fed reinitiates QE and implements NIRP)
- Rents and rent to income ratios are off the charts to new records well above ’08…maintaining the pace of rent appreciation is highly unlikely and rent declines may be the more probable course.
While those points listed above are certainly headwinds to housing, they have nothing to do with the growth in the over-70 age demographic.
Plus, add in the pace of new housing creation continues ramping up (still only half way to ’08 levels but still far more than can ultimately be absorbed with the changing dynamics). With so few new buyers, a growing quantity of new homes, and so many likely sellers…a very simple question must be asked, who will buy all those houses and at what price?
First, we won’t get a growing quantity of new homes without buyers. Builders aren’t stupid, and they will stop building if standing inventory builds up.
Second, the Millennial generation will drive most new home demand over the next decade or more, and there are more Millennials than there are Baby Boomers.
Third, as Baby Boomers downsize or die, a younger family will buy their home.
So does that mean everything is perfect?
Demographic Trend Lines in Housing: Exciting? Yes! Here’s Why
National Association of realtors, August 26, 2016
… the median age of repeat buyers (those who owned a home in the past and are buying another home) has increased, nearly every year, for the last 35 years. In 1981, the first year the data was collected, the median age of a repeat buyer was just 36 years old. In 2015, the median age of a repeat buyer was 53 years old.
Why is that? A couple of factors could be behind the increase in age. Longer life spans have allowed more retirees to enjoy retirement, …
Realistically, this explains 90% of the change.
As for first-time home buyers, there has been a lot of discussion recently among analysts and the media about the typical millennial (born 1980-1995) delaying marriage, delaying child rearing, and delaying the move out of a parent’s home and into one of their own.
(See: Are Millennial first-time homebuyers finally active?)
While delays in these milestone events is happening among millennials, for those who can manage to overcome numerous hurdles (student loan debt, stagnant wage growth, affordability constraints, and tight credit to name a few) and buy a home, it’s happening at the same age as past generations.
Unfortunately, with first-time homebuyer rates about 25% below normal, many Millennials aren’t clearing those hurdles.
Increasingly today, when first-time buyers do buy a home they don’t feel like they have to wait until marriage. Forty-four percent of first-time buyers in 2015 were not married, compared to 32 percent in 1981.
This may or may not be meaningful depending on what these singles do when they get married. Will they keep their first house as a rental? Will they sell it for equity for a down payment on a family home? Will the new couple simply move into the house one of them already owns?
It’s impossible for a demographer to know how these new single owners will behave. The only thing I am certain of is that they will react to their circumstances at the time, and so single answer will be right for all of them.
[listing mls=”OC16190744″]
CoreLogic: REO sales hit lowest point since housing market implosion
Distressed sales, which include real estate owned and short sales accounted for just 8.4% of total home sales in the U.S. in May, according to a recent report by CoreLogic.
This is down 2.1% from last year, and down 1% from April. Distressed sales are down 27.9% from its peak in January 2009.
http://www.housingwire.com/ext/resources/images/editorial/Kelsey-Thompson/Charts/Screen-Shot-2016-08-30-at-114129-AM.png
In the distressed category, REO sales, those taken back onto bank balance sheets owing to borrower nonpayment, made up 5.4% and short sales made up 3% of total home sales in May.
The REO share was 1.7 percentage points less than last year, and is the lowest share since May 2007, the last time the nation officially experienced an economic recession.
Short sales decreased below 4% in 2014, and has hovered between 3% to 4% since then.
At its peak in January 2009, distressed sales totaled 32.4% of the market sales, and REO sales made up 27.9% of that.
SOME STATES STILL SUFFERING BUBBLE ERA LOANS
California still has a lot of them
Ten years after the housing bubble burst in August 2006, a handful of states are still struggling with a low-grade foreclosure fever.
In these states an elevated level of bad loans originated during the last housing bubble is still lingering in the bloodstream, keeping local housing markets from returning to complete health despite many other signs of recovery.
http://static.realtytrac.com/images/reportimages/bubble_era_bad_loan_backlog_number.png
That’s counter to the trend in most states and nationwide, where the share of bad loans originated during the housing bubble between 2004 and 2008 has shrunk to 55 percent of all active loans in foreclosure. While that is still somewhat elevated, it is down dramatically from three years ago when these bubble-era loans represented 75 percent of all loans in foreclosure, and down from two years ago when they accounted for more than two-thirds of all loans in foreclosure. Just a year ago, more than 60 percent of all loans in foreclosure were still tied to loans originated between 2004 and 2008.
But the news is not so good in some other states. We looked at the lingering bubble-era loans in two different ways to identify the states with the biggest backlog.
First, we simply looked at sheer volume of loans originated between 2004 and 2008 that are in foreclosure. By that measure, states with the biggest backlog are New Jersey, New York, Florida, California and Illinois, all of which still have more than 10,000 bubble-era loans still lingering in foreclosure.
http://static.realtytrac.com/images/reportimages/bubble_era_bad_loan_backlog_share.png
I’m a bit surprised CA is on this list, considering it’s a non-judicial foreclosure state.
It used to be. Ever since the Homeowner’s Bill of Rights was passed it became a de facto judicial state, and the pre-foreclosure pipeline has bottle necked.
10 beach towns where real estate is a bargain
I think Florence, Oregon, would be a great place to live
Buying a home in a beach town is an expensive proposition, but in some spots there are bargains to be found.
Real estate research firm RealtyTrac identified beach towns with fewer than 50,000 residents that had a high quality of life and then investigated which of those were home to the best bargains. The study, released this month, measured the median price of homes in towns relative to prices in other beach towns, as well as the home prices that weren’t too close to their housing-bubble peaks. For quality of life, it looked at good weather and air quality, and a low density of registered criminal offenders.
“It’s a surprising list — these are places people have not heard of as much,” says Daren Blomquist, senior vice president at RealtyTrac. Indeed, often they are beach towns that are close to a name-brand beach town without being that town itself, which is why they represent a deal, he adds. (Of course, that also means some of them are sleepier than their bigger-named counterpart: For example, Bethany Beach in Delaware, roughly 15 miles from Ocean City, Md., makes the top 10, but it doesn’t boast nearly as much in the way of restaurants and entertainment as Ocean City does.
And the fact that these towns are bargains for beach towns doesn’t mean they are cheap: Many had median home prices of $300,000 and up, which is higher than the median in the U.S. overall, which stands at a little over $200,000. Plus, people who own homes in beach towns have to think about potentially higher insurance costs due to hurricane or flood damage.
Florence, Ore.
You can sail from the Siuslaw River right out into the Pacific Ocean — where you can then engage in some whale watching — from Florence, which is located about 60 miles west of Eugene. Homes carry a median price of $215,000.
Keansburg, N.J.
This town lies about an hour or two by car, depending on traffic, from lower Manhattan and boasts homes that cost about $160,000, according to real-estate website Zillow, as well as an amusement park for the kids with a water slide and roller coasters
Palm Beach, Fla.
You may think of Palm Beach as a town full of ultrarich people — and certain parts of it are very much that — but the median home price throughout the area is under $500,000, according to RealtyTrac data. Palm Beach is known for its quality shopping and sugar-sand beaches.
I couldn’t help but notice that 9 out of 10 are on the East Coast. What a letdown!
There are beach towns on the Big Island of Hawaii that are a bargain, but you either have to buy in an isolated area or, for the more adventurous, in a Zone 2 lava flow area. You’ll need to pay cash for the lava zone and insurance might be a problem as well.
Hot summer for O.C. homebuilders: Sales soar 69% vs. 2015
Orange County homebuilders are enjoying a hot-selling summer.
Builders sold 371 homes in the 22 business days ending Aug. 8, up 68.6 percent from a year ago, CoreLogic reported.
The jump is part of a year-long selling surge by developers who last year were caught with limited supply after a hot-selling 2014. Mid-month homebuying data can be volatile, but in 2016’s first half new homes sales were 22 percent above the 2015 pace.
Builders — with sales equal to 10 percent of the market — are having success with some proportionally lesser-priced homes. Orange County’s median selling price for new homes in the period ended Aug. 8 was $742,000, down 7.2 percent from a year ago.
Overall, the local homebuying market is relatively flat. Countywide, 3,601 Orange County residences — new and existing — sold in the 22-day period ended Aug. 8, up 1.7 percent from a year ago. Sales rose in 39 of 83 Orange County ZIPs compared to the year-ago period.
Orange County’s median selling price for all residences was $645,000 in the period, up 4.9 percent compared to a year ago. Prices were up in 54 of 83 Orange County ZIP codes compared to the previous year.
It’s part of a noteworthy summertime sales push at Orange County real estate’s upper end.
Just walk into any new Irvine development and ask for a price sheet. You’ll be surprised how few lots/homes are available for sale and you’ll be shocked by the listed base prices.
What always astounds me about the prices is that nearly everything built today is priced well above the conforming loan limit, which means the buyers put 20% down. That tells me that a huge market is untapped: buyers with good income but less than 20% down saved up.
Pending home sales hit second highest point in decade
This data is for July. Look for August to be much, much lower
Pending home sales increased in July up to the highest reading in over a decade, according to the latest report from the National Association of Realtors.
While the West led the way with its increase in pending home sales, the Midwest was the only area to see a decrease in contract activity, according to the report.
“The index in the West last month was the highest in over three years largely because of stronger labor market conditions,” NAR Chief Economist Lawrence Yun said.
“If homebuilding increases in the region to tame price growth and alleviate the ongoing affordability concerns, the healthy rate of job gains should support more sales,” Yun said.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 1.3% to 111.3 in July, representing the second highest point this year. It is up from a downwardly revised 109.9 in June, and up 1.4% from last year’s 109.8.
An index of 100 is equal to the average level of contract activity during 2001, the first year to be analyzed. Coincidentally, 2001 was the first of four consecutive record years for existing-home sales.
“Amidst tight inventory conditions that have lingered the entire summer, contract activity last month was able to pick up at least modestly in a majority of areas,” Yun said. “More home shoppers having success is good news for the housing market heading into the fall, but buyers still have few choices and little time before deciding to make an offer on a home available for sale.”
“There’s little doubt there’d be more sales activity right now if there were more affordable listings on the market,” he said.
What a great piece of propaganda though.
What a great piece of propaganda though.
I guess it bears repeating..
Weird. All this talk about “demographic changes” and not one word about the single most important factor hitting our country: mass third world immigration.
As I mentioned in a previous thread, I recently sold a home in Irvine that I bought 12 years ago. At the time it was mostly White retirees and singles. Over time more young families with kids moved in, as well as Asians and Middle Easterners.
I recently looked at a report of the neighborhood. Probably over 80% Asian and Middle Eastern imports.
“Mass third world immigration” isn’t mentioned, likely because it’s solely a alt-right meme.
He does have a point though. Here in Coastal California, we do get a lot more wealthy foreign immigrants than other areas of the country, and it does impact our housing market.
The political right is angry about the poor foreign immigrants that they believe come to this country and consume our public resources and displace poor working-class Americans.
The two are entirely different.
Everything is a meme until it affects you or your family! I don’t know what Ned stands for in terms of immigration, he might be speaking out of emotion or maybe out of personal experience.
I experienced a very diverse culture working for the fed government, I mentioned before to start teaching your kids a foreign language because your kids will have a disadvantage if they don’t speak a foreign language and if they don’t fit into a certain model that governments/companies are looking to hire these days. The amount of new hire whites/blacks was a very small % in government. Some had family members in government so they knew the ropes, but I find it very hard for a non-connected white/black student to be hired for the fed government these days because the fed government is pushing more diversity. I will also say that most people in leadership in government are white but that’s because they have been around 20, 30, or 40 years.
I’m sure there is massive data on this, I frankly don’t care what the data might say, I experienced it on a massive scale and friends that I worked with shared similar experiences.
Ned-
If you think about it, our ancestors fleeing Europe were leaving behind third world conditions as well. Europe was ravaged by non-stop wars, famine, oppression, and non-existent opportunity. America really was the land of opportunity with streets paved with gold, so to speak. Just look at the Irish.. They were treated pretty much like dogs in the US, yet they found this place to be preferable to the hellhole they had come from. That’s probably how Central Americans, Syrians, and other third worlders feel these days.
Why the next president needs a housing policy director
http://thehill.com/blogs/congress-blog/economy-budget/293709-why-the-next-president-needs-a-housing-policy-director
Nearly every U.S. Presidential Administration in recent history has viewed housing as a fundamental plank of its core domestic agenda for one clear reason: Access to safe, affordable housing, whether owned or rented, is critical to the economic success of every American. Over our history, homeownership has proven to be a key component of wealth building, and for those who can’t or don’t want to own, having a sufficient supply of rental housing can provide shelter, community and a piece of mind allowing greater chance at upward mobility.
In fact it was President Reagan who said, “Homeownership is an essential part of the American dream [and] fundamental to our way of life.”
But for the past 8 years we have lived with an Administration whose housing policy was informed by the worst recession since the great depression and one that was brought on by a bubble in the domestic housing market. Appropriately, policymakers’ focus was on protecting families in distress, creating rules to prevent a similar collapse, using enforcement as an instrument to hold accountable those who were perceived to have been at fault, and sending a strong signal to all involved that consumer care must be priority.
But now we are well beyond the crisis and currently enjoy the safest mortgage lending environment in modern history. Given that, the next President must turn the page and focus on developing a national housing policy that addresses a number of unhealthy imbalances in today’s housing market. And a key part of making that work will be creating a position in his or her Administration for a point person responsible for coordinating and executing on that policy.
After all, housing contributes approximately 18 percent of the gross domestic product, or in other words, one-fifth of the U.S. economy. It creates jobs, supports infrastructure and schools, and promotes positive social outcomes in health, education and family stability.
The delay in qualified millennials from entering homeownership is causing an unusual rise in rental costs. The reasons include tight credit, an inability of consumers to save for a down payment, student loan debt, and a lack of affordable housing stock.
And these rising rental costs are having an adverse effect, especially in urban communities. According to the Institute for Research on Poverty and University of Wisconsin-Madison, over the last twenty years, the percentage of Americans dedicating at least half of their income to housing has risen from 42 percent to 52 percent. And almost a quarter, representing over a million families, dedicate over 70 percent of their income to pay rent and keep the lights on.
Undoubtedly, the next Administration needs to create incentives through marketing and public messaging, down payment assistance or savings reward programs, tax incentives, or credits for appropriate real estate development.
Efforts to expand the development of affordable rental housing needs a firm Administration commitment via the expansion of the Low-Income Housing Tax Credit (LIHTC) and public/private partnerships to encourage the development of safe, sustainable, and affordable rental workforce housing.
Today, lenders are being discouraged from lending to first-time home buyers by unclear rules and overly aggressive and inappropriate enforcement actions by the government agencies. The overlapping regulatory framework, where the states are piling on top of federal, on top of international, has put lenders in a defensive position, forcing them to into the most conservative lending posture in order to meet the lowest common denominator. Needless to say this morass of bureaucracy must be addressed.
It was President Bill Clinton who said, “The objective for young people, with their futures before them and their dreams fresh in their minds… is to be able to own their home and to start a family … [this is], just as worthy today and, I would argue to you, more important today than it was 20 years ago.”
But to help such young people, and all people for that matter, the next President must bring a specific focus to their Administration. The complexity of the issues, the inter-regulatory aspect of the challenge, and the need to work across private and public sectors to reduce unnecessary barriers and create appropriate incentives will require a newly created Housing Policy Director.
This individual should report directly to the President and have clear principal level authority to call meetings, drive results, and measure progress. He or she will play an indispensable role not just in identifying conflict points, but working with multiple agencies and compelling independent regulators to coordinate policy so as to encourage lenders to lend to qualified borrowers.
To untangle and refocus a national effort on housing America’s families will require a President to make a certain and forceful pivot that leaves little doubt about this issue. That pivot cannot happen without a clearly articulated policy and someone empowered to use all the authority of the White House to make it happen.
David Stevens is the president & CEO of the Mortgage Bankers Association
I always recoil at symbolic politics. Whenever an administration appoints a “czar” of something, you know they want to give lip service to the issue for political reasons, but they really don’t want to do anything about the problem. What Stevens is advocating is basically a housing czar, and the position will be just as ineffective as the drug czar (http://time.com/3516927/history-of-white-house-czars/).
Undoubtedly, he used the word “undoubtedly” in hopes that people would accept his foolish notions without question. There is plenty of doubt whether or not any of those items are necessary or even helpful.
What to Do When You Can’t Sell Your House
Hint: Lower the price or take it off the market
If your house isn’t selling at all, and you’re losing hope that it ever will, these are your most probable options.
Keep improving your home. It isn’t what you want to hear, but maybe people aren’t buying because they don’t like what you’re selling. So make your home better.
“In the fall, contractors are looking for smaller jobs to complete before winter. Winterizing a porch or adding a deck might be cost-effective and also might bolster your asking price,” says Colby Sambrotto, the New York City-based president of USRealty.com, a real estate website.
Slash the price. If your home is really the pits and you almost don’t care what you get for it, as long as it’s something, you may want to do that and see what happens.
“We finally got a buyer and signed a contract only to have the deal fall through two months later as they could not get financing. The loft with no bedrooms made it impossible for an appraiser to comp out anywhere near the price,” Harkov says.
So that’s when they started slashing.
“We made a big price cut, got several good offers and ended up selling to a cash buyer who didn’t mind the drawbacks,” he says.
Harkov adds that money always talks: “There is always a buyer at the right price.”
Rent your home. It may be the best of your options if you desperately want to move, or, say, need to move due to a job offer.
And renting out the space a good option, according to Bill Golden, an Atlanta-based real estate agent with RE/Max Metro Atlanta Countryside. But he warns: “Renting is the first option, though it’s one with which you should proceed with caution.”
Embrace the defects. There’s no use pretending a defect doesn’t exist. If your house is next to a garbage dump, ignoring the problem won’t make it go away. In fact, there’s even a name for that problem.
“Flaws like a location under a flight path are called ‘incurable defects,'” Sambrotto says. “There’s nothing to be done except offset the defect with other features. For instance, you might show how you have installed extra-soundproofed windows on the side of the house facing a highway.”
Walk away. You may be tempted to move, anyway, and keep trying to sell the home. That’s probably your least desirable option, though it may work out well enough if you have someone mowing the lawn and looking after the place while a real estate agent brings in prospective buyers whenever. But if you plan on leaving without a process in place to get your house sold, you will likely regret putting your house out of your mind for any period of time, Golden cautions.
“Just letting it sit there empty is very rarely a good idea. There are always carrying costs [like property taxes and homeowners insurance], even if you have no mortgage, and it’s much harder to keep it properly maintained without someone living there on a daily basis keeping an eye on things,” he says. “If it didn’t sell before, giving it even less TLC is not going to help matters.”
Irvine may have new amphitheater by next year
Orange County might not have to wait too long for a new outdoor music venue to open after Irvine Meadows Amphitheatre is bulldozed to make room for the Los Olivos apartment community at the end of the 2016 concert season.
Los Angeles-based concert promoting giant Live Nation, which currently runs the venue, and developer FivePoint, will propose conceptual ideas for an outdoor concert venue to be constructed at the Orange County Great Park in Irvine to the City Council in the coming weeks.
As fans have made their way into the current amphitheater during its final 40-show run, the fact that it would no longer be their local summer concert haven has finally started to sink in. Because of an overwhelming amount of messages and posts via various forms of social media, Live Nation decided to give patrons a place to gather and express how much live music is not only needed, but wanted in Irvine.
“We are prepared to really help facilitate or even build a new venue or amphitheater with the City Council’s final approval when they’re ready to do this,” said Steve Churm, chief communications officer at FivePoint. “It has been part of the city’s master plan for many years, to put an amphihteater-like venue there within the cultural terrace at the Great Park.”