Existing-home sales gained momentum in June, reaching an annual pace of 5 million sales for the first time since October 2013, according to the National Association of REALTORS®’ latest housing report. Rising inventories also are pushing the overall supply of homes for sale toward a more balanced market, with unsold inventories 6.5 percent higher than a year ago, NAR notes.
“Inventories are at their highest level in over a year and price gains have slowed to much more welcoming levels in many parts of the country,” says Lawrence Yun, NAR’s chief economist. “This bodes well for rising home sales in the upcoming months as consumers are provided with more choices.”
Still, the market is facing several headwinds that continue to subdue a more robust recovery. NAR noted three in its most recent housing report:
1. Sluggish new-home construction: While overall housing inventories showed improvement in June, inventory problems continue to weigh on the market and could become more problematic if new-home construction doesn’t increase in more markets, NAR notes. “New-home construction needs to rise by at least 50 percent for a complete return to a balanced market because supply shortages — particularly in the West — are still putting upward pressure on prices,” Yun notes.
2. Stagnant wage growth: Yun also noted that stagnant wage growth is holding back what should be a stronger pace of sales. “Hiring has been a bright spot in the economy this year, adding an average of 230,000 jobs each month,” Yun notes. “However, the lack of wage increases is leaving a large pool of potential home buyers on the sidelines who otherwise would be taking advantage of low interest rates. Income growth below price appreciation will hurt affordability.”
3. Dwindling first-time home buyers: The percentage of first-time buyers continues to be low by historical standards. First-time home buyers made up 28 percent of the market in June, down from a typical 40 percent of the market historically.
Source: National Association of REALTORS®
A record 57 million Americans – or 18.1 percent of the U.S. population – lived in multigenerational households in 2012, according to an analysis by the Pew Research Center of the most recent data available measuring multigenerational households. The rate is up from 17.8 percent in 2011 and has risen dramatically. In 1980, for example, only 12.1 percent of the population lived in multi-generational households.
The trend is mostly being driven by young adults who are living at home, the report notes.
“After three decades of steady but measured growth, the arrangement of having multiple generations together under one roof spiked during the Great Recession of 2007-2009 and has kept on growing in the post-recession period, albeit at a slower pace,” according to Pew’s analysis.
For its analysis, Pew defined multigenerational households as having at least two adult generations, such as a parent and an adult child age 25 or older.
Nearly a quarter of young adults – or 23.6 percent – who are between the ages of 25 to 34 lived in a multigenerational home in 2012. That marks more than double the 11 percent in 1980, according to the Pew analysis. Declining employment and wages of young adults is undercutting their ability to live independently. The generation is also marrying at older rates, staying in school longer, and more ethnically diverse.
Source: “In Post-Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living,” Pew Research Center (July 17, 2014) and “All in the Family Home: Record 57 Million Americans Living in Multi-Generational Households,” The Wall Street Journal (July 17, 2014)
National averages on fixed-rate mortgages inched down this week, keeping borrowing costs near historic lows, Freddie Mac reports in its weekly mortgage market survey.
Freddie reports the following national averages for the week ending July 17:
- 30-year fixed-rate mortgages: averaged 4.13 percent, with an average 0.6 point, dropping from last week’s 4.15 percent average. Last year at this time, 30-year rates averaged 4.37 percent.
- 15-year fixed-rate mortgages: averaged 3.23 percent, with an average 0.5 point, dropping from last week’s 3.24 percent average. A year ago, 15-year rates averaged 3.41 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 2.97 percent, with an average 0.4 point, dropping from last week’s 2.99 percent average. Last year at this time, 5-year ARMs averaged 3.17 percent.
- 1-year ARMs: averaged 2.39 percent, with an average 0.4 point, dropping from last week’s 2.40 percent average. A year ago, 1-year ARMs averaged 2.66 percent.
Source: Freddie Mac
Federal Reserve Chairwoman Janet Yellen said in testimony Tuesday that the Fed may need to raise interest rates sooner than expected, but it all will hinge on the labor market.
“If the labor market continues to improve more quickly than anticipated by the Federal Open Market Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,” Yellen testified to the Senate Banking Committee on Tuesday. On the other hand, “if economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated.”
Recently, the unemployment rate has fallen rapidly, reaching 6.1 percent in June. But wage growth has remained weak, Yellen noted. Also, the housing market remains sluggish, which she said could slow the economic recovery.
“The housing sector has shown little recent progress,” Yellen testified. “While this sector has recovered notably from its earlier trough, housing activity leveled off in the wake of last year’s increase in mortgage rates, and readings this year have, overall, continued to be disappointing. The recent flattening out in housing activity could prove more protracted than currently expected rather than resuming its earlier pace of recovery.”
Source: “Yellen: Economy Uncertain, Housing Disappoints, and Rate Hikes Are Coming,” HousingWire (July 15, 2014) and “Yellen: Fed May Move Sooner if Labor Market Keeps Surprising,” The Wall Street Journal (July 15, 2014)
Young people are starting to leave their parent’s home and move out on their own. The Current Population Survey for 2013 showed a drop in the percentage of 20-somethings living with parents, marking the first decline since 2005.
As of now, the percentage drop appears minimal: Those aged 18 to 24 living with parents or a related subgroup dropped from 56 percent to 55 percent in one year. However, Brad Hunter, chief economist at Metrostudy, notes in a Builder online article that the one-percentage-point decline represents 300,000 people who are now looking for a household of their own that who were previously living with their parents.
A recent report by Harvard University’s Joint Center for Housing Studies predicts that 2.7 million more households will form among people in their 30s over the next decade.
First-time buyers usually make up about 40 percent of home buyers. However, lately, the share has been in the 35 percent to 38 percent range, Hunter says. For existing-home sales, first-time buyers’ share is less than one-third of all buyers, at 27 percent in May, according to the National Association of REALTORS®.
The delay in millennials branching out on their own has greatly reduced household formation in recent years. Household formation rates usually average 1.4 million per year. Lately, the rate has been a fraction of that, about 500,000 to 700,000 a year.
“We are seeing some evidence that young people who had moved in with their parents or relatives are now finding the means and the motivation to move out and get their own place,” Hunter notes. “While most of these newly-emerging twenty-somethings will be going into rentals, the movement out of the parental home is nonetheless expected to support a series of positive steps from rentals to entry-level re-sales to entry-level new homes, and on up the ladder.”
Source: “First-Time Buyers and New-Home Demand: Reverting to Normal,” Builder (July 10, 2014)
Mortgage bankers are fearful that another real estate bubble is on the horizon, according to a quarterly survey of 203 bank risk managers from the United States and Canada conducted by FICO. Fifty-six percent of respondents said that an “unsustainable real estate bubble is inflating.”
“The home loan environment has bifurcated,” says Andrew Jennings, chief analytics officer at FICO and head of FICO Labs. “Six million home owners in the U.S. are still underwater on their mortgages, with the average negative equity a whopping 33 percent. Yet with home prices soaring in many cities, total home owner equity in the U.S. is at its highest level since late 2007. That doesn’t feel like a healthy, sustainable growth situation. No wonder many lenders in both Canada and the U.S. are concerned about the risk in residential mortgages.”
But real estate experts mostly have downplayed housing bubble fears in recent months. In fact, a new report finds that home prices are still undervalued by 3 percent nationally. Trulia’s most recent Bubble Watch report found that at the current pace, home prices are expected to fall in line with long-term fundamentals – neither over- or undervalued – by the last quarter of 2014 or the first quarter of 2015.
“Much of the recent house-price appreciation is a result of market correction for the significant undervaluation caused by the price declines in the late aughts,” Mark Fleming, chief economist at housing data provider CoreLogic noted in recent months. “There is no need to fear a bubble for at least a few years to come, if at all.”
Source: FICO and “Study: Home Prices Undervalued by 3%,” REALTOR® Magazine Daily News (June 30, 2014)
The U.S. retail real estate market is heating up, with shrinking vacancies allowing landlords to raise rents. At strip malls, vacancies fell to 10.3 percent in the second quarter and are nearly a percentage point lower than a post-recession high set in the third quarter of 2011, according to Reis Inc., a commercial data provider. At traditional malls, vacancies held at 7.9 percent in the second quarter, dropping from a high of 9.4 percent in the third quarter of 2011, according to Reis.
Retail landlords are raising rents as space becomes a premium. Rents at U.S. malls rose for the 13th consecutive quarter, rising 0.4 percent in the second quarter to $40.32 a square foot a year. Rents at U.S. strip malls posted their 11th consecutive quarter rise, increasing 0.5 percent in the quarter to $19.51 a square foot.
“This is the continuation of a slow, but decidedly upward trend in quarterly rent growth over the last few years,” says Ryan Severino, a senior economist at Reis.
Builders are projected to complete 45.2 million square feet of retail space this year. In 2015, they are projected to add 71.5 million square feet of retail space in 63 markets, according to the CoStar Group, a real estate research firm. For comparison, in 2007, builders added 210 million square feet.
“We’ll see a moderate increase in the coming quarters in construction,” Suzanne Mulvee, a director of retail research at CoStar, told WSJ. “But it’s going to be a couple of years before we see construction getting back to even half the pace of what it was in 2007.”
Source: “Retail Rents on Rise as Space at a Premium,” The Wall Street Journal (July 3, 2014)
Reports of rising home prices are making selling more attractive to the largest share of home owners in eight years, according to a gauge from the University of Michigan and Thomson Reuters. Few of the home owners surveyed said they expected to lose money if they decided to sell their home now.
The findings could signal the beginnings of a major shift for the housing market, which has been haunted by the low number of homes for sale across the country.
Home price increases over the past two years may give more families confidence to sell their homes, alleviating low inventories and giving home buyers who were sitting on the sidelines because of fewer housing choice more incentive to make a move too, The Wall Street Journal reports.
Rising confidence among consumers could also translate into more sales in new homes. Last week, a report by the U.S. Census Bureau showed that new-home sales surged nearly 19 percent last month, reaching the highest rate since May 2008.
Two home-building giants reported a steady turnaround in new orders and price rises too in the second quarter. Lennar reported that new orders were up 8 percent, with average sales prices of its homes blooming 14 percent year over year. KB Homes, meanwhile, reported that orders increased 5 percent and its average selling price increased 10 percent in the past year.
Source: “More Would-be Home Sellers Say Prices Are Attractive,” The Wall Street Journal (June 27, 2014)
Home shoppers may find there’s good reason to breathe a sigh of relief this summer, according to the real estate brokerage Redfin. They pointed to higher inventories, fewer bidding wars, and slowing home prices as welcoming signs for home buyers this year.
In particular, home buyers this summer are finding:
- More options: Inventories of existing-homes are 6 percent higher than year-ago levels—currently representing a 5.6-month supply at the current sales pace, according to May housing data from the National Association of REALTORS®. The higher inventory levels of homes for-sale means that buyers have more choices this summer.
- Less competition: As inventories rise, buyers also are facing fewer bidding wars. Bidding wars are down by double-digit margins in many markets this year, according to Redfin, which conducts anannual bidding war report. In March, 63.4 percent of offers written by Redfin agents across 19 markets faced competition from other buyers, down from a bidding war peak of 73.4 percent a year prior, according to Redfin’s report.
- Price rises are slowing: The median existing-home price for all housing types in May was $213,400—a 5.1 percent rise above May 2013, NAR reports. Home prices rose by double-digits last year. In 2013, home prices rose 11.5 percent over 2012, according to NAR. “Home buyers are benefiting from slower price growth due to the much-needed, rising inventory levels seen since the beginning of the year,” Lawrence Yun, NAR’s chief economist.
- Low borrowing costs: Mortgage rates are averaging about 4.1 percent, less than half the historical average of a 30-year fixed-rate mortgage, which is 8.7 percent, Redfin reports. “For a $500,000 house, this is worth more than $500 a month in mortgage payments,” savings, Redfin notes on its blog.
Source: “4 Reasons Why Homebuyers Can Breathe a Sigh of Relief,” Redfin blog (June 27, 2014)
The housing market has made some strides since 2013, but household growth has yet to fully recover from the effects of the recession, according to a new housing report released Thursday by Harvard University’s Joint Center for Housing Studies.
“Young Americans, saddled with higher-than-ever student-loan debt and falling incomes, continue to live with their parents,” the report notes.
Still, researchers are hopeful for a turnaround as the Millennial generation breaks out on their own. The number of households in their 30s is expected to increase by 2.7 million over the coming decade, which should boost demand for new housing, the report predicts.
“Ultimately, the large Millennial generation will make their presence felt in the owner-occupied market, just as they already have in the rental market, where demand is strong, rents are rising, construction is robust, and property values increased by double digits for the fourth consecutive year in 2013,” says Daniel McCue, research manager at the Joint Center.
But Millennials likely will not be able to increase their presence in the housing market until incomes grow. Also, the report notes that another important aspect is how potential GSE reform will affect the cost and availability of mortgage credit for the next generation of home buyers.
Source: Harvard University’s Joint Center for Housing Studies