Millennials & Income

Today, Justin DeCesare returns as our guest blogger.  Justin is the CEO of Middleton & Associates Real Estate in La Jolla, CA. – The KCM Crew

Millennials have become an important topic of discussion for media outlets and blogs throughout the Country. While some argue that my generation is blossoming later than our predecessors, optimists such as myself believe that with our rebounding economy will help Millennials finally arrive in the economic arena that allows them the growth potential generations before us were afforded.

While I truly believe Millennials are positioned to become an important force in the new economy, the widening economic policy that minimizes retirement accounts and creates underemployment of Millennials threatens what is now America’s largest demographic.

In his post for MSN, Austin Thompson points out that Millennials are now in peak childbearing age, and from a Real Estate, as well as a parental Standpoint, what goes hand in hand with raising a family is the desire to own a home.

Families want to put down roots. They want to know they have a certain level of security if possible, while growing some form of equity for retirement.

While slashing pensions and lower wages certainly puts a strain on Millennial workers, the ability to purchase Real Estate can still be a saving grace in the Millennial financial planning process.

As agents and brokers, we are meant to advise our clients. We can’t change the fact that outside economic factors can have a negative impact on the lives of our clients. What we can do is try and help Millennials understand that they can take their future, and subsequently their retirement, into their own hands.

Chances are, your average Millennial client, like their parents, will not be starting out with a beach front multi-million dollar estate. Our job, is to help explain the path that starting in smaller affordable homes now will have down the road, how it will help them grow, and how it will help them take control of their livelihood.

Do more than sell my generation a house…help them build a future.

Hispanic Millennials & Housing

Nielsen recently released their report “Millennials – Breaking the Myths” and today I want to focus on the information reported about Hispanic Millennials.

Of the 77 million Millennials, 19% are Hispanic. This group (age 18-36) is the most racially and ethnically diverse than any previous generation. According to this report, Nielsen expects the Hispanic population to grow by 167% by 2050.

Millennials are 14% first generation, and 12% second generation Americans, keeping strong ties to their home country, culture and language. For example:

1. 63% of the Millennials feel it is their responsibility to care for an elderly parent, according to Nielsen: “this is partially tied to the ethnic diversity of the generation. Typically ‘Hispanic and Asian Americans’ have cultural expectations that elderly family members will be cared for by the younger generations.”

This can help you to understand why when a Hispanic Millennial is looking for a home, they are requesting that extra bedroom.

2. 65% of Hispanic Millennials are U.S. Born and are more bilingual than other generations

  • In 2003, 34% were Spanish dominant, 44% English dominant, 22% bilingual
  • In 2013, 31% were Spanish dominant, 31% English dominant, 38% bilingual

“Today, the bilingual Hispanic is the dominant group within these Millennials.” According to this report, this is telling us that “Hispanics are choosing to speak more Spanish and maintain cultural ties.”

Where are they looking for homes?

This report revealed “62% of the Millennials prefer to live in the type of mixed-use communities found in urban centers where they live in close proximity to a mix of shopping, restaurants and offices. This is the first time since the 1920s where the growth in U.S. cities outpaces growth outside of the cities. And, 40 percent say they would like to live in an urban area in the future.

The “American Dream” is transitioning from the white picket fence in the suburbs to the historic brownstone stoop in the heart of the city” and the markets with a major concentration of Millennials reflect this desire:

Top 10 markets for Millennials (by %):

  • Austin, TX (16%)
  • Salt Lake City, UT (15%)
  • San Diego, CA (15%)
  • Los Angeles, CA (14%)
  • Denver, CO (14%)
  • Washington, DC (14%)
  • Houston, TX (14%)
  • Las Vegas, NV (14%)
  • San Francisco, CA (14%)
  • Dallas-Ft. Worth, TX (14%)

Do you have an urban center in your market place? If you already know that 40 percent say they will like to live in an urban area in the future. Are Hispanic Millennials a part of your business plan?

Who Says Millennials Are Not Buying Houses?

Millennials Moving InWe have often gone against the grain to promote the fact that Millennials have a stronger belief in homeownership than previous generations. Some have strongly disagreed. Well, a new study from the National Association of Realtors (NAR) found Millennials now account for the greatest market share of recent home purchases.

NAR’s Home Buyer and Seller Generational Trends Study for 2014, revealed that Millennials comprised 31 percent of recent purchases, leading all other age groups. Here are the percentages for other generations:

  • 30% – Generation X
  • 30% – Boomer Generation
  • 9% – Silent Generation

NAR chief economist Lawrence Yun explained:

“Given that Millennials are the largest generation in history after the baby boomers, it means there is a potential for strong underlying demand. Moreover, their aspiration and the long-term investment aspect to owning a home remain solid among young people.”

Other findings from the report:

  • 87% of recent buyers age 33 and younger said they consider their home purchase a “good financial investment”
  • Millennials were most likely to have a simple desire to own a home of their own as their motive for purchasing
  • The median age of recent Millennial buyers was 29
  • The median income was $73,600.
  • 87% purchased an existing home, and they plan to stay in their homes for a median 10 years.
  • Younger buyers relied more heavily than older groups on real estate agents to help them navigate the process.

Bottom Line

Millennials are in the market and recognize the importance of using a real estate professional to guide them to the closing table.

Millennials: Optimistic & Ready to Buy

YoungFamilyHouseA recent survey by the PulteGroup revealed that the Millennial generation has a more optimistic outlook regarding the American economy than other generations. According to the survey, 54% of Millennials believe the economy is in better shape today than it was last year compared to only 41% of the total population.

It seems this optimism is impacting purchasing decisions as 74% of Millennials view now as an excellent or good time to buy the things they want or need. Jim Zeumer, vice president of corporate communications for the PulteGroup explained:

“No other cohort of adults is nearly as confident about their economic future as the millennials are right now. This is definitely a change, as millennials have regularly been viewed as the disenfranchised generation vastly affected by the fallout of the recession.  But now, with an increased sense of optimism, this generation is starting to feel as though they have the resources available to lead the lives they want or expect to in the future.”

WHAT ABOUT HOUSING?

Specific to real estate, the survey indicated:

  • 85% of Millennials plan to purchase a home in the future
  • 49% plan to purchase a home in the next two years
  • Of those planning to purchase in the near-term, 56 percent are current homeowners and 41 percent are renters
  • 65% prefer spending more money on a home that is move-in ready compared to doing renovations
  • 58% increased their interest in purchasing a home in the past year as the positive attributes of homeownership resonate with this generation.

3 Reasons the Housing Market Should Thrive in 2014

threeRecently, HousingWire asked David Berson, chief economist at Nationwide, for his opinion on the near-term future of housing. Below are what Mr. Berson believes to be the three things you need to know about housing in 2014. We have included a quote from the article and a small comment from Keeping Current Matters (KCM) for all three points.

Number 1: 2014 should prove to be the strongest year for housing activity since before the Great Recession

“Most economists expect an improved job market in 2014, with employment growth accelerating and the unemployment rate continuing to decline. That jobless rate drop will reflect more of a pickup in employment than further declines in the labor force participation rate. This will be the key factor improving housing demand this year, even if mortgage rates rise and affordability declines. While the housing market tends to do especially well when the job market improves and mortgage rates decline simultaneously, that combination of events occurs only rarely…People buy homes when their job and income prospects improve – even if it’s more expensive to do so – rather than buy when it is inexpensive to do so but they’re worried about keeping their jobs.”

KCM Comment:

We agree that the job market will continue to improve and that rising interest rates will not be a detriment to the market in 2014. As Doug Duncan, SVP and chief economist at Fannie Mae, recently revealed:

“Consumers have taken the interest rate rise in stride. Expectations for continued improvement in housing persist, and sentiment toward the current buying and selling environment is back on track.”

Number 2: Demographics should start to favor housing activity

“If the economy expands at a faster pace this year, bringing a more rapid rate of job creation, that should translate into more households, raising housing demand. We won’t see all three million missing households return to the housing market at once. (That wouldn’t be a good thing for the housing market anyway, since that would be on top of the 1.2 million households that normally would develop this year; such a surge would swamp the existing housing supply). Beginning in 2014, the pace of household formations should accelerate to an above-trend pace for several years, pushing up housing demand.”

KCM Comment:

The Urban Land Institute recently released a report, Emerging Trends in Real Estate 2014, projecting that 4.48 million new households will be formed over the next three years. Millennials will make up a large portion of these new households. With the economy improving, we believe they will finally be moving out of their parents’ homes and, after they compare renting versus buying, many will choose homeownership.

Number 3: Mortgage availability shouldn’t worsen and may improve

“The rise in mortgage rates already has reduced mortgage origination volumes as refinance activity declines. If mortgage rates rise further this year, as expected, then refinance activity will fall still more. In response, mortgage lenders probably will ease lending standards to the extent possible under the QM rules to boost lending activity by increasing purchase originations. As a result, the increase in new households expected to be created this year, spurred by a stronger job market, should find that qualifying for a mortgage loan will be somewhat easier in 2014 than in prior years.”

KCM Comment:

We also believe that, as the refinancing market begins to dry up, mortgage entities will be more aggressive in the purchase money market (mortgages necessary to purchase a home). There even seems to be recent evidence that lending standards are actually loosening.

Freddie Mac: Doubtful Rates Will Return to Recent Lows

blue interest rates“One thing seems certain: we aren’t likely to see average 30-year fixed mortgage rates return to the historic lows experienced in 2012.”

– Freddie Mac,  March 24, 2014

There are those that hope that 30-year mortgage interest rates will head back under 4%. Obviously, for any prospective home purchaser that would be great news. However, there is probably a greater chance that interest rates will return to the greater than 6% rate of the last decade before they would return to the less than 3.5% rate of 2012.

Freddie Mac, in one of four original posts on their new blog, explained that current rates are still extremely low compared to historic averages:

“The all-time record low – since Freddie Mac began tracking mortgage rates in 1971 – was 3.31% in November 2012. Conversely, the all-time record high occurred in October of 1981, hitting 18.63%. That’s more than four times higher than today’s average 30-year fixed rate of 4.32% as of March 20…rates hovering around 4.5% may be high relative to last year, but something to celebrate compared to almost any year since 1971.”

Rates over decades

If you are thinking of buying a home, waiting for a dramatic decrease in mortgage rates might not make sense.

Harvard: 5 Financial Reasons to Buy a Home

Eric Belsky is Managing Director of the Joint Center of Housing Studies at Harvard University. He also currently serves on the editorial board of the Journal of Housing Research and Housing Policy Debate. This year he released a new paper on homeownership – The Dream Lives On: the Future of Homeownership in America. In his paper, Belsky reveals five financial reasons people should consider buying a home.

Here are the five reasons, each followed by an excerpt from the study:

1.) Housing is typically the one leveraged investment available.

“Few households are interested in borrowing money to buy stocks and bonds and few lenders are willing to lend them the money. As a result, homeownership allows households to amplify any appreciation on the value of their homes by a leverage factor. Even a hefty 20 percent down payment results in a leverage factor of five so that every percentage point rise in the value of the home is a 5 percent return on their equity. With many buyers putting 10 percent or less down, their leverage factor is 10 or more.”

2.) You’re paying for housing whether you own or rent.

“Homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord.”

3.) Owning is usually a form of “forced savings”.

“Since many people have trouble saving and have to make a housing payment one way or the other, owning a home can overcome people’s tendency to defer savings to another day.”

4.) There are substantial tax benefits to owning.

“Homeowners are able to deduct mortgage interest and property taxes from income…On top of all this, capital gains up to $250,000 are excluded from income for single filers and up to $500,000 for married couples if they sell their homes for a gain.”

5.) Owning is a hedge against inflation.

“Housing costs and rents have tended over most time periods to go up at or higher than the rate of inflation, making owning an attractive proposition.”

Bottom Line

We realize that homeownership makes sense for many Americans for many social and family reasons. It also makes sense financially.