Newbie Buyers Make Smaller Down Payments

About 60 percent of first-time home buyers put down 6 percent or less on a home purchase in September. The median down payment has dropped from 6 percent to 5 percent for first-time buyers, according to the National Association of REALTORS®’ 2017 Profile of Home Buyers and Sellers.

NAR conducted a survey of non-homeowners earlier this year and found that most consumers believe you need a down payment of 10 percent or 20 percent to buy a home.

“They may not be aware that these programs are available, and they may not be taking advantage of them,” Jessica Lautz, NAR’s managing director of survey research and communications, said in the latest Down Payment Report, published by the Down Payment Resource.

Thirty-two percent of first-time buyers said they saved for more than two years to have enough to buy a home. Student loan debt was the most often cited obstacle to saving. The second most cited barrier for saving was credit card debt.

Source: “The Down Payment Report,” Down Payment Resource (November 2017)

4 Indicators Show Rising of Millennial Home Buyers

The millennial generation is inching their way into home ownership. Millennials, born from the early 1980s through the late 1990s, have largely delayed their entrance into home ownership, saddled by debt and high unemployment in the recession aftermath.

But economists are getting optimistic that the millennials are emerging into home ownership. Jonathan Smoke,®’s chief economist, said earlier this year that 2015 will mark an opportunity for younger buyers to enter the housing market, which will fuel a stronger housing recovery.

Here are some indicators that are making economists the most optimistic:

  1. Rising employment: The improvement in employment for this generation will bring rising incomes that may push more toward home ownership.
  2. Moving out: More millennials are moving out of their parents’ homes. New household formation is back up to pre-recession levels.
  3. Low mortgage rates, greater credit availability: Millennials have said that one of the biggest challenges to home ownership is saving for a down payment. Mortgage rates are still near historical lows, which is opening the doors for some. Also, several government programs are helping to increase mortgage availability for first-time home buyers.
  4. They desire to be home owners: Young adults say they want to buy. Thirty-two percent of millennials recently surveyed said they were saving for a house, according to a Bank of America/USA Today survey. A new Goldman Sachs’ infographic shows that 93 percent of millennials say they want to own a home.

Source: “Millennials on the Home Ownership Path,” The New York Times (March 6, 2015)

Study: Student Debt Costs Housing $83B a Year

Rising student-loan debt is putting a dent in the housing market. A new report from John Burns Consulting estimates that 414,000 home sales — or 8 percent of all sales — won’t happen this year because more buyers are strapped with too much student-loan debt. That will cost the housing industry an estimated $83 billion a year, per the study.

About 5.9 million households under the age of 40 owe $250 or more per month in student loans, a number has nearly tripled since 2005. Every $250 in monthly student-loan payments lessens borrowing and purchasing power by $44,000, the study finds.

Rick Palacios, director of research at John Burns Consulting, says the research firm believes those estimates are “pretty conservative.”

“We’re only looking at people ages 20 to 40,” he says. “We know there’s a big chunk of households over age 40 who have student debt, too.”

Home sales have been dwindling among young adults in recent years. A study by the Federal Reserve Bank of New York now finds that young people with student debt are less likely to have a mortgage and own a house than those who never attended college. That’s a reversal of the traditional trend, where those with higher education and higher earnings tended to own.

Source: “Student Loan Debt Curbs Housing Market by $83 Billion, Study Says,” Los Angeles Times (Sept. 22, 2014)

Families Step in to Help Kids Buy a Home

Employment troubles, large student loan debt, and tight underwriting standards have been major hurdles holding back potential first-time home buyers in their 20s and 30s, the Los Angeles Times reports.

In 2012, Americans 30 to 34 had the lowest home ownership rate of any similarly aged group in recent decades at 47.9 percent, according to demographer Chris Porter of John Burns Real Estate Consulting. As comparison, Americans born between 1948 and 1957 had a 57.1 percent ownership rate by the time they were in the 30 to 34 age group.

Studies have shown a strong desire among 20- and 30-somethings to buy a home, but their finances are holding them back from making such a move. As such, more relatives are stepping in to provide assistance with downpayment and closing costs. Twenty-seven percent of first-time buyers received a money gift from relatives last year.

Instead of just handing over money, some family members also are serving as “mini-lenders” themselves to help their adult children purchase a home, The Los Angeles Times reports. The family members may provide a second mortgage or first mortgage that are designed to deal with the relative’s financial hurdles,  like paying off student loans to reduce debt-to-income ratios (which has been a hurdle for many in qualifying for a loan). What’s more, the loans can provide annual returns to family members that have been known to perform better than money-market funds or bank deposits.

Source: “Finding Ways to Help Young Adults Make Their First Home Purchases,” The Los Angeles Times (Feb. 16, 2014)

‘Housing Recovery Threatened’ by Flat Wages

While job growth is picking up nationally, wages remain flat, which is holding back a more robust recovery, the National Association of Home Builders wrote in a recent blog post.

“A significant amount of pent-up housing demand exists, but for it to be unlocked more rapidly, additional gains in wages must be realized,” NAHB economists wrote.

During the recession, all age groups saw a decline in incomes, with the exception of the 65-and-older cohort. Since 2000, those under the age of 24 have seen the largest reductions in income, followed by people ages 45 to 54 (the top-earning age group), NAHB’s analysis shows.

First-time home buyers remain a shrinking number in the housing market. They accounted for 27 percent of existing-home purchases in December, down from 30 percent a year earlier, according to the National Association of REALTORS®.

Many young adults are facing high student loan debt, stifling their wage growth and ability to qualify for a mortgage, according to NAR’s Economists’ Outlook blog.

—By REALTOR® Magazine

U.S. in ‘Worst Rental Affordability Crisis’ Ever

As rental demand grows, about half of renters spend more than 30 percent of their income on rent, up from 18 percent a decade ago, according to newly released research by Harvard’s Joint Center for Housing Studies. Twenty-seven percent of renters are paying more than half of their income on rent.

“We are in the midst of the worst rental affordability crisis that this country has known,” says Shaun Donovan, U.S. Secretary of Housing and Urban Development.

Rising rents mixed with a stunted wage growth has created an affordability problem, the study notes. Between 2000 and 2012, real median rents rose nationwide by 6 %. However, over that same time period, the real median income of renters fell by 13 %.

“Over four years, [there’s been] a 43 percent increase in the number of Americans with worst-case housing needs,” says Donovan. “Let’s be clear what that means: They’re paying more than half of every dollar they earn for housing.”

“There is no question that the will toward home ownership remains there — [the problem is] the way,” says Eric Belsky, director of Harvard’s Joint Center for Housing Studies. However, rising home prices and mortgage rates, high student loan debt, and tightened credit is holding many back and forcing them to continue to rent.

Source: The Harvard Joint Center for Housing Studies and “Skyrocketing rents hit ‘crisis’ levels,” CNBC (Dec. 9, 2013)

Housing’s Big Thorn: Student Loan Debt?

Student loan debt is the main culprit hampering the housing recovery, says Rohit Chopra, the student loan ombudsman for the Consumer Financial Protection Bureau.

“We are already seeing signs of economic drag from student loan debt,” Chopra says. “The impact on the housing market is the most troubling part.”

Student loan interest rates typically are at 8 percent or above, Chopra says. An estimated 7 million borrowers with student loans are in default, he adds.

“The fact is student indebtedness impacts the credit profile of first-time home buyers,” Chopra says. “Three-fourths of the fall in household formation can be directly correlated to student debt.”

The CFPB will be serving as the new regulator that will oversee student loan servicing and lending. Chopra says the agency plans to address this issue. Your comments?

Source: “CFPB: Student loan debt hijacks the housing recovery,” HousingWire (Oct. 8, 2013)

Rising Student Loan Debt keeps ‘Home Buyers Out’

Between 2004 and 2012, student loan balances nearly tripled, per a new survey from the Federal Reserve Bank of New York. What’s more, one-third of student loan borrowers are delinquent on their debt, according to the Federal Reserve report. This will impact their credit rating and possibly keep them out of the mortgage market much longer.

“Short term, you see a decrease in the number of first-time home buyers,” Brian Coester of Coester Valuation Management told CNBC. “You’re going to see somebody who would have been able to afford a more expensive house maybe go for the lower version or the downgraded version.”

Potential buyers with heavy student debt burden have been forced to rent or even move back in with their parents as they chip away at their debt.

“Long term it’s going to really affect especially the upper end, because people aren’t going to have the excess income to buy the jumbo property or buy that high end property,” says Coester. “It’ s going to affect home prices as a negative, as more of a cap, because it’s really debt that they are servicing.”

Source: “Student Debt Is Housing’s $1 Trillion Challenge,” (April 8, 2013)

“Gen Y” is Ready to Buy!

Forty-seven percent of Generation Yers say they plan to purchase a home within five years or less, according to a new study by Western Union. That tops the general population, 29 percent of which say they plan to buy a home in the next five years or less.

Ten percent of Generation Y members surveyed are even more eager to jump into the housing market, saying they plan to buy a home in the next 12 months, according to Western Union’s Payment Money Mindset Index survey.

But unlike other generations, Gen Y may have some debt to work through first. The surveyed showed that the generation has higher student-loan debt and more bills compared to any other age group. About one in four graduating students who have student loan debt say they will move home after graduation to curb costs.

The survey also found that Gen Y tends to be bigger spenders when compared to other age groups. The survey found that they outspend other age groups in leisure activities, such as on hobbies, video games, electronics, sporting events, and recreation.

Source: “Western Union: Gen Y Gives Home Sellers Some Hope,” HousingWire (5/23/12)