Discussing the latest on consumer attitudes on housing, reasons for the low level of home ownership, rents very hard to afford and much more…
Fannie Mae just released their latest index that tracks consumer attitudes about housing. Some of the highlights:
The Home Purchase Sentiment Index fell in May 2017 but as you can see, it is much higher than it was a few years ago.
60% said it is good time to buy a home but 33% said it is a bad time to buy a home. Despite the high number of people saying it is a good time to buy, home sales are not as strong as they should be. This could be due to the lack of inventory in many areas.
61% said it a good time to sell a home but 29% said it is a bad time to sell a home. Some people may be scared to sell because they are concerned about finding their next home with the low number of homes for sale.
48% think home prices will increase in the next 12 months versus the 8% that think home prices will go down in the next 12 months.
56% think mortgage rates will increase in the next 12 months versus the 4% that think mortgage rates will decrease in the next 12 months. As home prices and mortgage rates increase, buyer’s purchasing power will decrease.
85% are not concerned about losing their job in the next 12 months compared to the 14% that are concerned. Even if you are not concerned, you should always plan for the worst and hope for the best.
28% said their household income is significantly higher than 12 months ago versus the 10% that said their household income is significantly lower. It would be nice to see more people reporting an increase in household income.
On average, consumers expect rents to increase 3.8% in the next 12 months. On average, consumers expect home prices to increase 2.6% in the next 12 months. Rents increasing faster than home prices should help to motivate some renters to buy.
68% said they would buy a home if they moved compared to the 27% that said they would rent.
55% think it would be easy to get a mortgage versus the 42% that think it would be hard. I would say it isn’t hard so much as it is rewarding…
49% think their personal financial situation will get better in the next 12 months versus the 11% that think their personal financial situation will get worse. I guess there will always be some pessimists…
47% think the economy is on the right track versus 40% that think the economy is on the wrong track. I wonder how the political viewpoints of those surveyed affected the answers on this one…
A great report entitled Hurdles to Homeownership: Understanding the Barriers points out 5 reasons for the low level of home ownership today. The report was prepared by Rosen Consulting Group for the National Association of REALTORS® and jointly released by Rosen Consulting Group and the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley Haas School of Business.
The 5 reasons are:
Post-foreclosure stress disorder: People are not forgetting what happened during the foreclosure crisis, either to themselves, family members, friends or co-workers. People may want to own a home but they also don’t want to face the same problems. Who can blame them?
Mortgage Availability: Credit is much tighter today than it was before the housing market crashed. We are still paying for the days of giving mortgages to anyone that could fog a mirror.
Affordability: Home are not affordable due to higher prices, increasing mortgage rates and stagnant incomes.
Inventory: Since the housing market crashed, homes have not been built at a pace to keep up with demand and population growth.
Student loan debt: High levels of student loan debt makes it hard to save for a down payment, qualify for a mortgage and afford a mortgage payment.
All very good causes for the low level of home ownership and the report goes into great detail and is a must read.
I have written for years that we need to see healthy income growth for everyone to have a truly healthy economy and housing market. This is why the latest numbers from the National Low Income Housing Coalition’s latest Out of Reach report are especially disturbing.
This report maps the minimum hourly wage required to afford a modest rental based on federal Fair Market Rent (FMR) estimates. The report defines “affordable” as housing and utilities that cost no more than 30 percent of a person’s annual income—also the basic standard used by the feds. NLIHC has run these reports since 2005, and this minimum “housing wage” is rising year over year.
In 2017, the average U.S. worker would need to bring in a whopping $21.21 per hour to reasonably afford a modest two-bedroom apartment. That’s nearly three times the federal minimum wage of $7.25, and roughly 30 percent more than the $16.38 hourly wage that the average U.S. renter brings home.
Look at the data for South Carolina:
According to their data, you would need to work 1.8 full time minimum wage jobs to afford a 2 bedroom at Fair Market Rent. Needless to say, you can find much cheaper rentals but you get what you pay for…
Something else to consider is that if people are struggling to pay rent, then it isn’t very likely they can save money to buy a home. And if they are working all the time, you have to wonder about their quality of life. Or that of the children living in households that are working 3 or 4 full time jobs…
Couple of interesting snippets from HUD Secretary Carson at last week’s National Housing Symposium:
All of us have heard the stories about Millennials living at home, renting, or sharing rooms. And many of these people are credit-worthy, but feel excluded from the possibility of homeownership. You can understand the frustration. It cuts across an entire age group.
We must be mindful of this situation. We don’t want to exclude a generation of buyers, or even generations to come. We must do more … work for more. We must find a reasonable, prudent path to link Millennials with investors and lenders – and the housing market itself.
We know that a first step toward homeownership is often the purchase of a condominium. The condo is often a step onto the homeownership ladder. And a way of moving up that ladder. And we know that FHA has a central role to play. It is the lender of choice for many first-time home-buyers. For many, FHA is the entryway to the housing market.
So, today, let’s find the ways and means for credit-worthy first-time home-buyers to enter the market. Here is one way. I want to direct your attention to “The Housing Opportunity through Modernization Act of 2016.” That act allowed FHA, under certain circumstances to lower its required owner-occupancy standard for approved condominium developments. The owner-occupancy minimum has been reduced from 50 percent to 35 percent. Ultimately, this action will allow for more people, including Millenials, to use FHA to buy a condo.
On Wednesday, Fannie Mae announced it would reduce its debt to income ratio to attract more Millennial homeownership. Such an action would help some Millennials, although FHA loans would remain an attractive, powerful option.
While I do like the changes to the allowed minimum number of owner occupants in condos, I am not a fan of lowering the debt to income ratio. It makes it too easy for some people to bite off more than they can chew.
It is ultimately up to the consumer to decide on what is best for them. I strongly suggest buyers stick with a monthly payment that is very affordable and easy to make. Speaking of affordable…
At the national level, housing affordability is down from last month and down from a year ago. Mortgage rates increased to 4.11 percent this April, up compared to 3.89 percent a year ago.
Not good to see affordability decrease. But determining what is “affordable” will vary from on person to the next. Just like I said before, you want a payment that is easy to make. You do not want to struggle to make the payment and not have any money left over to use for vacations and a social life.
With rapid growth across markets in the Southeast, the region has emerged as a diverse, economic powerhouse, resulting in strong commercial real estate fundamentals for all property types. The Southeast’s rosy story is the result of a shift in both population and business growth from the Northeast and Midwest Rustbelt to Southeast markets, a reflection of the region’s desirability.
Heck yeah! We can expect things to keep improving. While it may not be over night and we must be sure to not elect idiots, we do have a very bright future in the Anderson SC area.
The May 2017 Survey of Consumer Expectations shows that household inflation expectations declined at the one-year ahead horizon and dropped noticeably at the three-year ahead horizon. Home price change expectations continued to edge up. The outlook of consumers in several other dimensions showed few signs of optimism—spending growth expectations remained at their series low and perceived current and expected future financial situations worsened from the previous month.
- Median year-ahead home price change expectations increased 3.5%
- Median one-year ahead inflation expectations decreased from 2.8% in April to 2.6%
- Median three-year ahead inflation expectations dropped from 2.9% in April to 2.5%, their lowest reading since January 2016
- Median one-year ahead earnings growth expectations decreased from 2.5% in April to 2.2%
- Median expected household income growth was largely unchanged from the previous month, at 2.7%
- Median household spending growth expectations remained at 2.6%, the series low reached in April
I must point out that consumers are expecting home prices to increase more than house hold income…
Buying the typical home listed for sale in more than half of the nation’s 35 largest markets will require a greater share of income than the median-valued home required historically, according to a new Zillow® analysis.
Zillow Chief Economist Dr. Svenja Gudell said:
Homes have gotten so expensive in many major cities that even with low mortgage rates, monthly costs for homes that are currently for sale are starting to be unaffordable. Down payments are a top concern for today’s homebuyers, but the reality is that monthly costs are becoming unaffordable as well. Low inventory is pushing sticker prices higher, and when mortgage rates start to rise, monthly payments will be driven further into unaffordable territory.
It isn’t just rents that are becoming hard to afford. The thing to remember is that now, mortgage rates are still low. You could buy a home with a fixed rate and lock in your monthly housing costs.
Check out this chart showing the impact of today’s low mortgage rates on your monthly payment:
As you can see, mortgage rates increasing affects how much home you can afford. I strongly suggest scheduling an appointment with a mortgage lender ASAP to discuss your options, budget and start working on getting your Pre-Approval Letter!
That’s it for today!