2015: The Return of the Millennial Home Buyer

2015: The Return of the Millennial Home Buyer | Simplifying The Market

Earlier this month, Zillow predicted that millennial buyers (under the age of 35) will become the largest group of buyers, overtaking Gen X (35-50 years old) by the end of 2015. Dr. Stan Humphries, Zillow Chief Economist, explained:

“Roughly 42 percent of millennials say they want to buy a home in the next one to five years, compared to just 31 percent of Generation X, and by the end of 2015 millennials will become the largest home-buying age group. The lack of home-buying activity from millennials thus far is decidedly not because this generation isn’t interested in homeownership, but instead because younger Americans have been delaying getting married and having children, two key drivers in the decision to buy that first home. As this generation matures, they will become a home-buying force to be reckoned with.”

Two days later, Realtor.com also projected that Millennials will be a driving force in the housing market next year. In their 2015 Housing Forecast, they claim:

“Households headed by millennials will see significant growth as a reflection of economic gains. Millennials will also drive two-thirds of household formations over the next five years. Next year’s addition of 2.75 million jobs and increased household formation will be the two key factors driving first-time buyer sales.”

Has the Millennial Home Buyer already re-entered the market?

AEI’s International Center on Housing Risk also released their first First-Time Buyer Mortgage Share Index this month. The report revealed that the percentage of first time home buyers may have been underestimated in 2014. According to the report, the percentage of first time buyers “averaged an estimated 46 percent over the 12 months ending October 2014”.

That number far exceeds other numbers reported by the National Association of Realtors and others.

Bottom Line

The Millennial generation is growing up, finding jobs, getting married and starting families. Homeownership will definitely be the next step.

New York Times: Homeownership is Best Way To Build Wealth

New York Times: Homeownership is Best Way To Build Wealth | Simplifying The Market

The New York Times recently published an editorial entitled, Homeownership and Wealth Creation.” The housing market has made a strong recovery, not only in sales and prices, but also in the confidence of consumers and experts as an investment.

The article explains:

“Homeownership long has been central to Americans’ ability to amass wealth; even with the substantial decline in wealth after the housing bust, the net worth of homeowners over time has significantly outpaced that of renters, who tend as a group to accumulate little if any wealth.”

Many of the points that were made in the article are on track with the research that the Federal Reserve has also conducted in their Survey of Consumer Finances.

The study found that the average net worth of a homeowner ($194,500) is 36x greater than that of a renter ($5,400).

One reason for this large discrepancy in net worth is the concept of ‘forced savings’ created by having a mortgage payment and was explained by the Times:

“Homeownership requires potential buyers to save for a down payment, and forces them to continue to save by paying down a portion of the mortgage principal each month.”

“Even in instances where renters have excess cash, saving a substantial amount is difficult without a near-term goal, like a down payment. It is also difficult to systematically invest each month in stocks, bonds or other assets without being compelled to do so.”

Bottom Line

“As a means to building wealth, there is no practical substitute for homeownership.” If you are a renter who is considering making a purchase, sit with a local real estate professional who can explain the benefits of signing a contract to purchase over renewing your lease!

Confusing Real Estate News? An Agent Can Help

Confusing Real Estate News? An Agent Can Help | Simplifying The Market

Below are the headlines from three separate news releases issued over a one month period:

11/3/2014 – Millions of Potential New Households Waiting Out the Recovery

11/11/2014 – Experts: First-Time Homebuyers’ Weak Finances Holding Back Housing Market

And then, the contrarian view:

12/2/2014 – In 2015, Millennials Will Be Biggest Home Buying Group

It sure seems that the group that released the first two stories emphatically disagrees with the organization that published the last news release.

Amazingly, the same entity published all three reports. What?

It seems the company (a well-respected provider of housing information) reported that those forming new households are not looking to buy a home. They actually surveyed over one hundred housing experts who agreed. But 30 days later, they reported that millennials (most new households) will be the biggest group of home buyers this year. All in one month!!

All the headlines could actually be true. However, a consumer reading them might be misled. This is evidence of how difficult it is to actually understand the intricacies of today’s housing market. Even the experts can seem confused.

Bottom Line

If you are thinking of either buying or selling a home, it is probably best to engage a local real estate professional to help you successfully navigate the ins-and-outs of today’s real estate transaction.

Breaking News: Fannie and Freddie formally announce 3% Down Programs

Breaking News: Fannie and Freddie formally announce 3% Down Programs | Simplifying The Market

Yesterday, HousingWire reported that both Fannie Mae and Freddie Mac formally announced their 3% down options on home purchases. Fannie Mae’s plan will be effective December 13, 2014 while the Freddie Mac plan will be available March 23, 2015. The HW article quotes FHFA Director Mel Watt:

“The new lending guidelines released today by Fannie Mae and Freddie Mac will enable creditworthy borrowers who can afford a mortgage, but lack the resources to pay a substantial down payment plus closing costs, to get a mortgage with 3% down. These underwriting guidelines provide a responsible approach to improving access to credit while ensuring safe and sound lending practices.”

This is great news to millions of purchasers that have been denied the opportunity to own their own home because of the almost impossible burden of saving for a 20% down payment.

Will these programs create future challenges?

Certain pundits fear that low down payment programs will create a wave of foreclosures down the road. Mr. Watt also addressed this concern:

“To mitigate risk, Fannie Mae and Freddie Mac will use their automated underwriting systems, which include compensating factors to evaluate a borrower’s creditworthiness. In addition, the new offerings will also include homeownership counseling, which improves borrower performance. FHFA will monitor the ongoing performance of these loans.”

We also recently addressed this issue.

Here are the direct links to the guidelines for each program:

Fannie Mae 3% Down Program

Freddie Mac 3% Down Program

Remember, as with any new program, there will be some confusion as it is unveiled. Contact a mortgage professional for a deeper understanding. Don’t have a mortgage person yet? Contact me for a referral.

Rent Increases Expected to Continue through 2015

Rent Increases Expected to Continue through 2015 | Keeping Current Matters

CNBC’s Diana Olick recently reported that rents in the residential housing sector continued to rise in 2014. She interviewed Jed Kolko, Chief Economist at Trulia, who revealed:

“Rents are rising because of strong demand that supply hasn’t kept up with. Nearly all the new households are renters, and young people moving out of their parents’ homes will keep fueling rental demand.”

Where are rents headed in 2015?

The question now is where rents will be heading over the next twelve months. In a press release last week, Zillow chief economist Dr. Stan Humphries predicted residential rental prices will continue to climb in 2015:

“Home value appreciation will continue to cool down, from roughly 6 percent now to around 2.5 percent by the end of 2015. But rents will see no such slowdown, and will continue to grow around 3.5 percent annually throughout 2015. As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market.”

However, those potential buyers must make a decision quickly because, as Kolko explains:

“Paying more on rent makes it harder for would-be homebuyers to save for a down payment.”

Bottom Line

Ryan Severino, a senior economist at Reis, in Olick’s article stated the obvious:

“Landlords should still be able to push asking rent increases on to their tenants.”

If you are thinking about buying a home in 2015 instead of continuing to rent, it probably makes sense.

Home Prices Continue to Rise

Home Prices Continue to Rise | Simplifying The Market

“Broad-based Slowdown for Home Prices”

That is a headline you might have seen over the past weekend. And though it is true, we must understand the story behind the headline. Case Shiller reports on the year-over-year difference in home values. Their latest report revealed that the rate of appreciation has slowed – not that prices are falling!! Here is exactly what they said:

“The 20-City Composite gained 4.9% year-over-year, compared to 5.6% in August.”

Prices are still up this month over last year’s values (4.9%) just not as much as they were last month (5.6%).

Home Prices are NOT Falling.

As a matter of fact, the latest Home Price Expectation Survey by Pulsenomics (a survey of a nationwide panel of over one hundred economists, real estate experts and investment & market strategists) showed that home prices will continue to appreciate for the next several years.

Home Price Expectation Survey Projected Prices | Simplifying The Market

Bottom Line

Both first time buyers and families thinking of moving-up to their dream home can be assured that their investment in their new home makes sense.

Freddie Mac: Buy Sooner Rather than Later

Freddie Mac: Buy Sooner Rather than Later | Simplifying The Market

In a recent video update on the housing market, Frank Nothaft, Freddie Mac’s chief economist, stated that with both mortgage interest rates and home prices projected to increase in 2015 buying now makes sense.

“If you are planning to buy a home in the next year, it’s better to do it sooner rather than later.”

Here are the latest mortgage interest rate projections from four major housing entities: Fannie Mae, Freddie Mac, the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR):

Mortgage Rate Projections | Simplifying The Market

Thinking of Selling & Moving Up?

This advice isn’t limited to just the first time buyer. If you are considering moving up to the home your family has always wanted, waiting also makes no sense.