There are many hot topics right now and immigration is definitely one of them. Whether we agree or disagree on what is going on at this moment, the history of immigration starting around 1600 shows us the United States has been a country that always received immigrants. Several organizations have done research on the impact immigrants can have on housing demand. Let’s look at some of those results: Research done by the National Association of Home Builders (NAHB) in 2012 states: “Assuming net immigration of 1.2 million (the low end Census Bureau projection for 2010) persists for 10 years, the model estimates that after 10 years new immigrants will:
- account for close to 3.4 million US households
- occupy more than 2 million multifamily units and more than 1.2 million single family homes
- account for more than 900 thousand homeowners”
The Research Institute for Housing America also projects “that from 2010 to 2020 immigrants will count for over one-third of the growth of homeowners and over one-quarter of the growth in renter households.”
Need for Continued Research
In this month’s edition of Fannie Mae’s Housing Insights, they source the American Community Survey in stating that there were 18.8 million immigrant renters in the country in 2012. Fannie Mae goes on to say that these numbers represent “a large reservoir of potential future homeownership demand”. They conclude with:
“Continued study of how these and future immigrants advance into homeownership as they reside longer in the U.S. may provide valuable insights into future prospects for the country’s housing market.”
A More Localized Look at the Impact
For those looking for local data, a research study performed by AS/COA and Partnership for a New American Economy, provides an interactive map showing “the net change in a county’s immigrant population from 2000 to 2010 and the corresponding effect on median home values.”
If we look at the conclusions made by multiple sources, we see that they agree that immigrants will revitalize less desirable neighborhoods and support the housing market. Each group is seeking greater economic opportunities just like the immigrants in past decades that came to United States. The question is: are we prepared to help them with their real estate needs?
In a recent press release, Zillow stated that the affordability of the nation’s rental inventory is currently much worse than affordability of the country’s home sale inventory. The release revealed two things:
- Nationally, renters signing a lease at the end of the second quarter paid 29.5% of their income to rent
- U.S. home buyers at the end of the second quarter could expect to pay 15.3% of their incomes to a mortgage on the typical home
Furthermore, renters pay more than the average of 24.9% that was paid in the pre-bubble period while buyers actually pay far less than the 22.1% share homeowners devoted to mortgages in the pre-bubble days.
Don’t Become Trapped
If you are currently renting you could get caught up in a cycle where increasing rents continue to make it impossible for you to save for a necessary down payment. Zillow Chief Economist Dr. Stan Humphries explains:
“The affordability of for-sale homes remains strong, which is encouraging for those buyers that can save for a down payment and capitalize on low mortgage interest rates…As rents keep rising, along with interest rates and home values, saving for a down payment and attaining homeownership becomes that much more difficult for millions of current renters.”
Know Your Options
Perhaps you already have saved enough to buy your first home. HousingWire recently reported that analysts at Nomura believe:
“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.
It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)
Freddie Mac came out with comments on this exact issue:
- A person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent (sometimes with as little as 3 percent coming out of their own pockets)”.
- Freddie Mac’s purchase of mortgages with down payments under 10 percent more than quadrupled between 2009 and 2013.
- More than one in five borrowers who took out conforming, conventional mortgages in 2014 put down 10 percent or less.
Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.
There are some homeowners that have been waiting for months to get a price they hoped for when they originally listed their house for sale. The only thing they might want to consider is… If it hasn’t sold over the summer, maybe it’s not priced properly.
After all 14,109 houses sold yesterday, 14,109 will sell today and 14,109 will sell tomorrow. 14,109!
That is the average number of homes that sell each and every day in this country according to the National Association of Realtors’ (NAR) latest Existing Home Sales Report. NAR reported that sales are at an annual rate of 5.15 million. Divide that number by 365 (days in a year) and we can see that, on average, over 14,000 homes sell every day. Sales are at the highest pace of 2014 and have risen for four consecutive months.
We realize that you want to get the fair market value for your home. However, if it hasn’t sold in today’s active real estate market, perhaps you should reconsider your current asking price.
There are some pundits lamenting the softness of the 2014 housing market. We can’t understand why. Though it is true that the early part of the year disappointed because of a myriad of reasons (ex. weather, lack of inventory, less distressed sales), the recent housing news is extremely encouraging. Let’s give some examples:
Spring Home Buying Season is Healthiest in 3 Years
Move, Inc. just last week revealed that this spring’s housing market finished stronger than any time in the last three years. In the report, Jonathan Smoke, chief economist for realtor.com explained:
“This is the first time, since the beginning of the recovery that we expect to see positive momentum throughout the second half of the year. While seasonal patterns are emerging in July month-to-month comparisons, all other metrics point to fundamental market health and a build-up of momentum.”
Existing Home Sales are Up
In their latest Existing Home Sales Report, the National Association of Realtors (NAR) announced existing-home sales increased in July to their highest annual pace of the year. That is even though distressed property sales fell to 9%, the first time they were in the single-digits since NAR started tracking the category in October 2008. Lawrence Yun, chief economist for NAR explained:
“The number of houses for sale is higher than a year ago and tamer price increases are giving prospective buyers less hesitation about entering the market. More people are buying homes compared to earlier in the year and this trend should continue.”
New Construction Surging
According to an article on Market Watch, new constructing is surging:
“Construction on new U.S. homes jumped 15.7% in July to the highest level in eight months and starts were revised up sharply for June, indicating a pickup in home building after an early-year lull. Housing starts climbed to an annual rate of 1.09 million last month…Economists surveyed by MarketWatch had expected starts to climb to a seasonally adjusted 975,000 in July.”
Foot Traffic at Year High Numbers
Foot traffic (the number of people out actually physically looking at homes) has a strong correlation with future contracts and home sales, so it can be viewed as a peek ahead at sales trends two to three months into the future.
The latest foot traffic numbers show that there are more prospective purchasers currently looking at homes than at any other time in the last twelve months which includes the latest spring buyers’ market.
The spring market finished stronger than any time in the last three years. Home sales are at year long highs. New construction is beating estimates. There are more buyers out than at any time in the last twelve months.
We think the housing market is doing just fine.
The interest rate you pay on your home mortgage has a direct impact on your monthly payment. The higher the rate the greater the payment will be. That is why it is important to look at where rates are headed when deciding to buy now or wait until next year.
According to a recent article in Kiplinger, 30 year mortgage rates are about to increase:
“Now around 4.1%, rates will edge slowly toward 4.4% by the end of this year. Then they’ll follow the Treasury bond rate’s upward move in early 2015. Thirty-year home loans should end 2015 at around 5.1%, still low by historical standards.”
Here is a graph created by using interest rate projections in Freddie Mac’s August 2014 U.S. Economic & Housing Market Outlook:
How will this impact a mortgage payment?
Research released this month by Zillow reveals:
“We examined how a 1 percentage point rise in mortgage rates would impact monthly payments for the typical home in 35 metro areas, and found that the difference this year versus next year varies dramatically from market to market. In the San Jose/Silicon Valley area, for example, potential buyers should expect to see a monthly payment increase of more than $700 if they waited a year to buy the same home they were considering today. By contrast, in St. Louis, the difference is only $65 per month.” (emphasis added)
Again, we turn to the Zillow research:
“As rates rise, new home buyers will confront higher financing costs and monthly mortgage payments. For many, this will mean tightening their budgets and sacrificing some luxuries they may take for granted today.”
Kevin Kelly, Chairman of the National Association of Home Builders (NAHB), recently explained that:
“With interest rates near historically low levels and strengthening job growth, now continues to be a great opportunity to buy a home.”
We couldn’t agree more. However, one must realize that, with prices and interest rates both projected to increase, waiting could be costly.
There are two organizations that look at the affordability of purchasing and actually measure it over time. The National Association of Home Builders has their Housing Opportunity Index (HOI) and the National Association of Realtors’ has the Housing Affordability Index.
Both indexes are reporting the same thing. The cost of buying a home is beginning to increase leading the affordability indexes to dip.
Both indexes say we passed the bottom of the housing market
According to NAHB’s HOI housing affordability dipped slightly in the second quarter of 2014. NAHB’s Chief Economist David Crowe explains:
“The second quarter HOI reflects the slow but steady march toward the historic levels of price appreciation and interest rates that result in affordability levels we experienced before the mid-2000s boom.”
According to NAR in a recent Economists’ Outlook post, home affordability is down from both one month ago and one year ago in all regions.
Michael Hyman, Research Assistant at NAR said:
“At the national level, housing affordability is down for the month of June due to higher prices and qualifying income levels despite the lowest mortgage rates of the year.”
In a recent article, the Wall Street Journal also revealed that the cost of home ownership is higher than any time in over five years:
“Housing affordability hit its lowest level in nearly six years in June as home prices continued to climb.”
If you were waiting for the bottom of the market, you missed it. Yet, with prices below values of seven years ago in most parts of the country and interest rates near historic lows, it is still a great time to buy a home…but hurry!