Home
affordability is not a modern problem. In Zillow's In Search of Affordability,
Krishna Rao writes, "Across the United States, strong home price
affordability has been recently eroded by a combination of rising home prices
and mortgage rates. Some areas, particularly on the West Coast, have begun to
look unaffordable compared to their historic norms, forcing some household to
look to the periphery of urban areas in search of affordable homes."
Zillow measures affordability by looking at how much of a person's monthly
income is spent on a mortgage payment. Historically in the United States, the
median household would need to spend 22.1 percent of their income to afford the
mortgage payments on the median home. This number fell dramatically during the
housing recession, hitting a low of under 13 percent by the end of 2012.
Speaking
of economy: Texas, not only did a recent ABC poll put Austin at #4 for recent
college grads, but the Dallas Fed issued a report titled, "Texas
to Remain a Top State for Job Growth in 2014" and reminding us
that "Texas was the third-fastest-growing state in terms of job growth in
2013, trailing only North Dakota and Florida. The Texas economy will likely
continue growing faster than the national average in 2014, and nonfarm
employment should increase by 2.5 to 3.5 percent." In addition,
"Texas Leads Nation in Creation of Jobs
at All Pay Levels". "Texas experienced stronger job growth than the
rest of the U.S. in each of four wage groups--lowest, lower-middle,
upper-middle and highest paid-from 2000 to 2013. Texas has also created more
higher-paying than lower-paying jobs."
The
home ownership rate has been dropping steadily since its high of 69.2 percent
in 2004 to now just 65 percent. Millions lost their homes to foreclosure and
millions more never entered the market, fearing falling home prices. Now, 10
percent of U.S. renters say they would like to buy a home in the next year,
according to a new report from Zillow, which surveyed
renters in the nation's 20 largest housing markets. If all the renters who said
they wanted to buy a home in the next year actually did, that would represent
more than 4.2 million first-time home buyer sales, about twice the number of first-timers
in 2013.
First-time
home buying has actually fallen to the lowest level ever recorded by the National Association of Realtors,
at just 26 percent of sales in January. These buyers usually make up roughly 40
percent of the market. Interestingly, the majority of the renters who said they
wanted to buy felt they could afford home ownership, despite rising home prices
and rising mortgage rates. The trouble is there is just not that much out there
to buy. Home construction is still recovering at a slow pace, and prices for
newly built homes are far higher on average than for existing homes. The number
of homes for sale is rising slightly but is still well below historical norms
across most markets.
"Even
after a wrenching housing recession, this data shows that the dream of
homeownership remains very much alive and well, even in those areas that were
hardest hit," Zillow's chief economist Stan Humphries said in the report.
"But these aspirations must also contend with the current reality, and in
many areas, conditions remain difficult for buyers. The market is moving toward
more balance between buyers and sellers, but it is a slow and uneven process."
Homeownership aspirations among
renters were actually highest in some of the hardest hit markets of the housing
crash, such as Miami, Atlanta and Las Vegas, according to Zillow. That may be
because so many renters there are former homeowners who lost their homes to
foreclosure. They are now seeing these markets recover, as investors bought up
the distressed properties, pushing prices higher far faster than anyone
expected. These renters are seeing market resilience, and likely want back in.
Foreclosure activity, in fact,
fell 10 percent in February from January and is down 27 percent from a year ago
to the lowest total since December 2006, according to a new report from
RealtyTrac. But there have been some great buys through the foreclosure
process, as morbid as that sounds.
Ironically, these bargains
might be perfect for first-time buyers looking for a good deal, but they remain
stuck in limbo land. Meanwhile, tight credit and higher prices are keeping many
of these same potential buyers away from new construction. The level of student
debt, not able to be discharged through bankruptcy, is climbing. (Auto loan
debt is also increasing, and after several months of declining, it appears that
mortgage debt is beginning to creep higher. Unfortunately for today's youth,
tuition has gone up at 3x the inflation rate for decades. Not only that, but
their overall wealth has not benefitted from the rally in equity prices, nor
from the housing market appreciation (which has benefitted Millennial's parents
- and in fact worked against first time home buyers).
This
is a big topic "out there" in the industry, with the thinking that,
since there are more Millennials (age 18-34) kicking around than baby boomers,
they will step in and become first time home buyers, and help to boost the housing
market.
The numbers support the argument. But they have to be financially savvy, and
many of them are not. A few weeks ago at the Wisconsin MBA event I had the
opportunity to spend some time with Brenda Campbell, the Executive Director of
the "Make a Difference Wisconsin" program. It is a non-profit
organization dedicated to providing youth with the financial management tools
needed for success. Funds go to mobilizing a 500 member volunteer group
that provides in-school financial education to thousands of Wisconsin high
school students. "Committed to empowering teens to make sound financial
decisions by increasing their personal financial knowledge and skills."
Heck, who wouldn't want kids to learn about bank accounts, interest, budgets, and
credit? After all, many of them will be future home owners.
Yes,
programs are growing in popularity, but parents should be training their
kids to be financially literate and establish credit. Tracey Sanderson, VP
at Washington's Banner Bank, contributed, "Credit is a game that is
to be played wisely and there are few ways to learn the rules. Parents are the
best teachers... but many of them have never been taught to play the game
either. Parents - Teach your children to save and to make regular monthly
payments. Habits that are established when we're young tend to stay with
us a lifetime.
Back to the markets! The
foundation of a recovering economy are built on jobs and housing. Yesterday we
learned that the pace of U.S. home construction rebounded less than forecast in
March: housing starts climbed 2.8 percent to a 946,000 annualized rate
following February's 920,000 pace. Building permits declined 2.4 percent to a
990,000 annualized pace versus forecasts of "unchanged." Fed Chair
Janet Yellen gave a speech, although it "offered nothing particularly
market moving." And thus we found the markets nearly unchanged.
Today is an early close for the
bond market, and it is closed tomorrow for Good Friday. For news we'll have
Initial Claims (+11k to 311k) at 8:30AM EST and April Philly Fed (+1.0 to +10)
at 10AM EST. The Treasury Department will announce details of next week's
auctions of 2-, 5- and 7-year notes. For numbers in the early going, the
yield on the 10-yr. at the close Wednesday was 2.63%, and we're unchanged in
the very early going this morning.
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