Home Buyers: Going to the Exurbs

In their search for affordability, home buyers are taking their house hunts further out from the city limits. Exurbs are the outskirts of major metro areas that lie beyond the suburbs. Many offer more land and greater affordability in new-home construction.

Single- and multifamily activity in the exurbs makes up only a small share of permit activity across the country, but their quarterly growth rates reached a new high in the first quarter of 2019, according to the National Association of Home Builders’ new Home Building Geography Index. Single-family permit activity has posted a 5.6% year-over-year growth rate, which is higher than that for large metro areas and suburbs, the index reveals.

Source: “Exurbs Grow During a Weak First Quarter per NAHB HBGI,” National Association of Home Builders’ Eye on Housing blog (May 28, 2019)

Mortgage Rates Continue Decline

“Mortgage rates fell for the fourth consecutive week and continued the medium-term trend of lower rates since late 2018,” says Sam Khater, Freddie Mac’s chief economist. “The drop in mortgage rates is causing purchase demand to rise, and the mix of demand is skewing to the higher end as more affluent consumers are typically more responsive to declines in rates.”

Freddie Mac reports the following national averages for the week ending May 23:

  • 30-year fixed-rate mortgages: averaged 4.06%, with an average 0.5 point, falling from last week’s 4.07% average. Last year at this time, 30-year rates averaged 4.66%.
  • 15-year fixed-rate mortgages: averaged 3.51%, with an average 0.4 point, falling from a 3.53% average last week. A year ago, 15-year rates averaged 4.15%.
Source: Freddie Mac

Who Needs to Downsize?

A growing number of baby boomers are choosing not to downsize in retirement. Instead, they’re opting to remain in the homes where they raised their children, USA Today reports. But their reluctance to move is contributing to low inventory across the country, says realtor.com® Chief Economist Danielle Hale.

Baby boomers “have refused to follow what the traditional expectations were,” Barbara Risman, a sociology professor at the University of Illinois at Chicago, told USA Today. Baby boomers, mostly between the ages of 54 to 73, are working longer and, therefore, putting retirement off longer than previous generations. Their millennial children increasingly are living at home with them and staying well into adulthood.

For baby boomers who do plan to move, 43% say they want their next home to be the same size as their current one. Twenty-two percent say they want their next home to be even larger, according to a January surveyof 50- and 60-year-olds by Del Webb.

Home Loan Interest Rates Update

Home buyers saw mortgage rates edge lower again this week, with rates remaining well below year ago levels.

“While signals from the financial markets are flashing caution signs, the real economy remains on solid ground with steady job growth and five-decade low unemployment rates, which will drive up home sales this summer,” said Sam Khater, Freddie Mac’s chief economist.

Freddie Mac reported the following national averages for the week ending May 16:

  • 30-year fixed-rate mortgages averaged 4.07 percent, with an average 0.5 point, dropping from last week’s 4.10 percent average. A year ago, 30-year rates averaged 4.61 percent.
  • 15-year fixed-rate mortgages averaged 3.53 percent, with an average 0.4 point, falling from last week’s 3.57 percent average. A year ago, was 4.08 percent.
Source: Freddie Mac

Mortgage Rates ‘Drop This Week’

Mortgage rates are showing signs of moderating this month, following increases in April. Borrowers are discovering much lower rates compared to a year ago.

“A combination of low mortgage rates, a strong job market, and modest wage growth should spur home buyer interest and also serve as an incentive for homeowners looking to refinance this spring,” says Sam Khater, Freddie Mac’s chief economist.

Freddie Mac reports the following national averages with mortgage rates for the week ending May 9:

  • 30-year fixed-rate mortgages: averaged 4.10%, with an average 0.5 point, falling from last week’s 4.14% average. Last year at this time, rates averaged 4.55%.
  • 15-year fixed-rate mortgages: averaged 3.57%, with an average 0.4 point, falling from last week’s 3.60% average. A year ago, 15-year rates averaged 4.01%.
Source: Freddie Mac

Owning Is Easier Than Renting

Survey: A majority of homeowners recently surveyed say they believe owning a home isn’t as difficult as renting, according to a new survey from LendingTree, an online loan marketplace. Only 15% of homeowners believe renting is easier than owning a home, compared with 67% of more than 2,000 homeowners who said owning is easier.

The longer homeowners have been in their homes, the more likely they are to believe owning is easier, according to the study. For example, nearly 72% of homeowners who have spent seven to nine years in their home say owning is easier than renting.

Multiple Refinance Problems

It can be financially harmful to borrowers and investors to repeatedly refinance their mortgages, warns Ginnie Mae, a government-backed firm that guarantees government mortgage bonds. That’s why the institution is taking steps to crack down on the practice of “churning,” where lenders push borrowers to refinance their home loans over and over again. Homeowners may be drawn to the idea of lowering their monthly mortgage payments, but multiple refinances can lead to more lender fees and a higher bill in the end.

Ginnie Mae started to take action against individual lenders last year when their activity suggested they were pushing refis on borrowers, even when they wouldn’t benefit from it. Ginnie Mae is honing in on mortgages where borrowers pull cash out of their home during a refinancing. The loan then results in more than 90% of value.

Source: “Ginnie Mae Moves to Crack Down on Repeated Refinancers,” The Wall Street Journal (May 3, 2019) [Log-in required.]

 

Retirees Aren’t Downsizing?

All the buzz about retirees downsizing and putting down roots in urban areas may be overrated. After all, neither practice is all that popular among millennial’s, who are usually the trendsetters.

Contrary to many projections, about 87 percent of boomers and Gen Xers don’t plan to make a beeline for urban down towns, instead choosing a suburban or rural setting where they can slow down and enjoy some peace and tranquility. “Data from our most recent survey clearly indicates that true urban living appeals to only a limited number of future retirees,” says Jay Mason, vice president of market intelligence for PulteGroup. “Both Gen Xers and baby boomers nearing retirement are looking for a different quality of life when considering their next move.”

 

 

Has the 2017 Tax Overhaul Hurt Home Sales?

The Tax Cuts and Jobs Act, an overhaul of the U.S. tax code enacted in 2017 that puts a cap on some deductions for homeowners, has “negatively impacted the housing market” by tamping down sales volume, according to a study by the New York Federal Reserve.

The 2017 tax law placed a $10,000 cap on deductions of state and local taxes, increased the standard deduction, and placed a $750,000 limit on the amount of mortgage debt that qualifies for interest write-offs.

Lawrence Yun, chief economist for the National Association of REALTORS®, said in NAR’s March existing-home sales report that tax policy changes continue to impact some markets. “The lower-end market is hot while the upper-end market is not,”

Source: “Overall, 2017’s Massive Tax Overhaul Hasn’t Hurt Home Values,” The Washington Post (April 27, 2019) and “Is the Recent Tax Reform Playing a Role in the Decline of Home Sales?” Federal Reserve Bank of New York (April 15, 2019)

Waiting Longer for Loan Approval?

If you’ve been following the news, you might have heard that the Federal Housing Administration is putting up hurdles for higher-risk borrowers to get their home loan application approved. On March 14, the FHA said applicants with a credit score of 620 or lower, or with a debt-to-income ratio of 43 percent, would get their loan application reviewed manually rather than through automated underwriting. This isn’t a new policy—it’s a return to a policy the agency had but moved away from in 2016.

As a result of this return to its previous practice, high-risk borrowers will still have their application reviewed, but it will get extra scrutiny and take longer.

In a sense, the agency is going back to basics. There’s been an uptick in higher risk loans getting into its insurance fund, and it wants to take action before problems appear. “Continuing to endorse mortgages with higher risk characteristics, without changes, negatively affects the Mutual Mortgage Insurance Fund,” the agency says in its memo announcing the policy.