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®
When it comes to smart homes, consumers are more interested in their security features than the gadgets that control the homes’ appliances. New research by Icontrol Networks, a home technology company, shows that 90 percent of 932 respondents recently surveyed say that security is one of the most important reasons for using a smart-home system. In fact, 67 percent rank it the No.1 reason, and the majority of consumers say security is a must-have in any home automation, according to Icontrol’s 2014 State of the Smart Home Report.
Fire and carbon monoxide alarms, as well as gas leak alarms, were listed as top security features, according to the survey.
“For now, safety and security are driving initial mass market adoption,” says Jim Johnson, executive vice president of Icontrol Networks. “But the convenience associated with a connected home will likely play a greater role as consumers realize how much easier automation makes their lives.”
Seventy-eight percent of respondents also ranked energy management as one of the top features that matter most to them in a smart home. HVAC heating and cooling management was cited as the most important feature in helping to reduce utility bills. Nearly 43 percent of respondents say they’d be interested in replacing their thermostat with a “smart thermostat,” one that automatically adjusts when the home is occupied.
Would home owners be willing to pay for extra costs in making homes smarter and more connected? The survey found that 51 percent of respondents would be willing to pay up to $500 for a fully equipped smart home; 32 percent say they’d pay $500 to $3,000.
Source: “What Consumers Want in Home Automation,” Builder (July 17, 2014)
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)
Sixty-seven percent of consumers say they’re planning a home renovation within the next six months, according to realtor.com®’s Home Improvement Survey of more than 1,500 home owners. They’re planning to spend more money on their renovations than last year, the survey found.
The most common budget range for home improvements was between $2,001 and $5,000. Eighteen percent of respondents who say they plan to renovate before the end of the year are budgeting $10,000 to $20,000 on their renovation.
Respondents indicated that these are the most popular areas of the home to renovate: the kitchen (61%), bathrooms (59%), backyards or patios (33%), and the exterior of the home (32%).
“With 32 percent of consumers planning to spend money on improving the look and feel of their homes, home buyers should think about purchasing homes that require renovations,” says Barbara O’Connor, chief marketing officer for Move Inc. “By considering these kinds of homes, buyers open themselves up to more affordable options and the ability to renovate their homes to fit their specific needs and tastes.”
Additional survey findings at: Source Move Inc.
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
In what is thought to be a first for the homebuilding industry, Standard Pacific Homes is constructing models that offer a pet suite as an optional amenity.
The company, inspired by the results of livability studies conducted with home owners, is promoting the homes in 27 residential developments from Florida to California.
“Devotion to pets is second to none,” notes Standard Pacific executive Jeffrey Lake. “They are family.”
The most lavish suite is a 170-square-foot pet paradise with a step-in wash station, handheld sprayer and leash lead; tile walls and floors; a designated drying area with a commercial-size pet dryer; a water station; automated feeders; a large bunk-style bed; cabinets for toys, treats and food; a stackable washer and dryer; a French door that opens to a puppy run; and a flat-screen television. Your comments?
Source: “Pets’ Amenities Rising Trend for Homebuilders,” Associated Press (July 17, 2014)
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)
By 2023, there could be up to 4.7 million more renter households due to demographic forces, according to Harvard University’s report, The State of the Nation’s Housing 2014. But the supply of multifamily rental housing will likely be far less than demand, writes David Brickman, Freddie Mac’s executive vice president for multifamily business.
“New construction by itself won’t fill the gap,” Brickman notes. “Additional investment needs to be made in existing units to keep them in active inventory. As part of this, there is a growing need to direct ‘flexible’ capital into renovating, preserving, and, in some cases, transforming the nation’s aging rental housing stock.”
Rental demand is rising due to younger generations who want to rent as they start their careers, those who face certain financial situations, and more interest in urban living, which will lead to higher rates of renters.
While multifamily construction has risen in recent years to try to meet the increase in demand, Brickman says it won’t be enough at the current pace, even with about 3.1 million new units expected over the next 10 years. Meanwhile, the existing rental housing stock is aging. Nearly 60 percent of U.S. rental properties with 20 or more units were built prior to 1980, according to the Census Bureau’s 2012 American Community Survey. About 6 percent of all units are “retired” each year, according to the survey.
Brickman says by some estimates, the supply already could be 1.5 million apartments short. ”Low vacancy rates have sped up rent growth faster than inflation and income growth,” he notes. “Add to that stagnant or falling wages, and the result is that more than half of all renters live in apartments considered unaffordable to them today. That is, they spend more than 30 percent of household income on rent and tenant-paid utilities.”
Source: Freddie Mac
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 rates this week ticked up only slightly, largely fueled by a better than expected jobs report, Freddie Mac reports in its weekly mortgage market survey. Still, mortgage rates remain below last year at this time.
Freddie Mac reports the following national averages for the week ending July 10:
- 30-year fixed-rate mortgages: averaged 4.15 percent, with an average 0.7 point, rising from last week’s 4.12 percent. Last year at this time, 30-year rates averaged 4.51 percent.
- 15-year fixed-rate mortgages: averaged 3.24 percent, with an average 0.6 point, rising from last week’s 3.22 percent average. A year ago, 15-year rates averaged 3.53 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 2.99 percent, with an average 0.4 point, rising from last week’s 2.98 percent. Last year at this time, 5-year ARMs averaged 3.26 percent.
Source: Freddie Mac