British chaos means interest rates will stay low for longer

FRANKFURT, Germany (AP) — Savers will suffer longer with zero returns on their accounts. Home buyers, companies and governments will keep on borrowing cheaply. And questions will grow further about whether central banks are creating bubbles in financial markets by keeping interest rates near or below zero.

The British vote to leave the European Union shook up markets and lowered growth forecasts for Britain and, to a lesser degree, the other 27 members of the European Union. Economists say that means central banks are likely to have to keep in place for even longer their massive, extraordinary stimulus efforts that have helped keep the global economy afloat in the wake of the 2008-9 financial crisis. Some central banks might even have to unveil new stimulus or rate cuts.

Posted on June 30, 2016 at 7:15 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Mortgages, Selling

Seattle housing: Is it a bubble?

Seattle area single-family home prices in March were up 10.8 percent from a year ago, behind only Portland, where prices have shot up 12.3 percent, according to the latest S&P/Case-Shiller data. (Greg Gilbert/The Seattle Times)

Seattle area single-family home prices in March were up 10.8 percent from a year ago, behind only Portland, where prices have shot up 12.3 percent, according to the latest S&P/Case-Shiller data. (Greg Gilbert/The Seattle Times)

Single-family house values in Seattle shot up 10.8 percent year-over-year in March, the second highest in the nation after Portland, according to the latest S&P/Case-Shiller index.

It’s a new record, surpassing the previous peak in the summer of 2007 — and we saw how that turned out. Nationally, the increase was 5.2 percent. Here, it’s especially good news for homeowners and bad for buyers.

Perhaps, but probably not.

The old bubble was a nationwide phenomenon, stoked by subprime mortgages, Wall Street hustles, high leverage, and compromised regulators. While the latter two always bear watching, the same dangerous confluence of factors from 2007 don’t apply to today. The Case-Shiller 20-city index remains below its 2007 levels.

Instead, the biggest price increases are tied to low supply, high demand and strong economies in certain very desirable cities, such as Seattle, Portland and Denver. Elsewhere, it is a natural consequence of the recovery.

Black swans do appear. So, for example, an economic meltdown in China, a trade war under President [real-estate developer], earthquake or volcano eruption could ruin your whole day. The more likely outcome is a slow moderation caused by higher interest rates, deflation of a tech bubble, slowed jobs growth or, in some places, new inventory of housing coming online.

Even then, if San Francisco is an example, prices will soon begin marching up again.

The issue of high prices doesn’t exist in a vacuum. There’s not a linear connection between housing costs and the very diverse problems lumped under the sometimes-misleading term homelessness. But economists have found that less affordable housing is a factor behind rising inequality.

House prices have been disconnected from median incomes since the early 2000s. So the issue is not merely housing affordability but stagnant or falling incomes. And bubble pops only make this worse.

This article originally appeared on The Seattle Times website.

Posted on June 9, 2016 at 1:40 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Local Market Update, Selling

6 Deck Renovations That Really Pay Off—and 1 That Doesn’t

nice deck

Charles Schmidt/iStock

 

If there’s one thing that unites this great country—especially once the weather starts getting warmer and barbecue season gets ever so tantalizingly closer—it is our passionate, even obsessive love for our outdoor decks. Truth be told, just about all of us desire a perch from which to survey our backyard (or rooftop) kingdom, lazily hang out, or busily entertain.

One story behind the origin of decks is that they were inspired by boat decking. But unlike new yawls or yachts—which will depreciate in value by an average of 24% in just three years—a brand-new wooden deck addition to your home will net you a 75% return on investment when you decide to sell, according to Remodeling Magazine’s 2016 Cost vs. Value Report.

That’s why in honor of summer’s sweet approach, we take a look at the ROI for decks in our latest installment of Renovations That Really Pay Off. Whether you are building one from scratch or just want to make the one you have bigger and better, here’s how to get your deck on this summer in ways that will pay off awesomely down the road.

Gratis guidance

Before you pick up a hammer, review the wildly useful free deck guide from the American Wood Council. Did we mention it’s free? Here you’ll find safe construction specs so you can get your rim joists and ledger boards just so. This should also be when you decide on deck size—a 200-square-foot deck will run you about $4,836—keeping in mind an addition could jack up your property taxes and insurance. Getting those hard numbers will help you figure out your overall budget (handy deck cost calculator here).

Getting started

The average contractor charges $35 per square foot to build a deck, but where the cost can vary enormously is in the material. Hollow-core PVC can cost as little as $7.50 per square foot, cedar even less at $3.50—while the Brazilian hardwood ipe goes for a nosebleed-inducing $22 or more  (compare prices here).

A great way to save money? “Design your deck for standard lengths of lumber: 6-, 8-, 10-, or 12-foot boards,” says Chris Peterson, author of “Deck Ideas You Can Use.” This will eliminate any wasted wood from cutoffs. Peterson also suggests buying secondhand. “Organizations like Habitat for Humanity sell reclaimed wood from demos, as do some local salvage shops.” In addition to possibly scoring unique hardwoods, “the savings can be significant.”

Protect your investment

Your deck is constantly exposed to sun, rain, snow, and the occasional melted Creamsicle. Peterson advises “waterproofing wood decks regularly to ensure longevity … even if you’re letting the cedar or redwood age naturally. Water can cause direct damage in the form of rot and indirect damage like mold.”

Harry Adler of Adler’s Design Center & Hardware in Providence, RI, recommends protecting vulnerable surfaces with a product such as C2 Guard, a nontoxic waterproofer designed for use on unsealed wood and concrete surfaces.

Beyond wood

Pure, quality wood is the gold standard for decks. But there are other options, according to Bill Leys, aka The Deck Expert.

“Wood decks need yearly maintenance, and those costs can rapidly add up over the 20 years they’re expected to last,” Leys says.

James Brueton of EnviroBuild recommends using a quality wood composite, “which initially has a slightly higher cost. But without the need to treat the deck every year, you’re soon saving money over traditional wood.”

TimberTech is the only premium wood composite decking that is capped with a protective polymer on all four sides. Better yet, all TimberTech decking comes with a 25-year limited residential warranty.

Eye on entertaining

Outdoor entertaining should be the key focus of any deck design, Brueton says.

“Especially when reselling your home, any new buyer will immediately see the appeal of barbecue days and summer nights” on a deck, he says. Since all these revelers will need a place to sit, one easy way to add that is a built-in bench made out of the same wood as the deck itself. It generally offers a strong ROI.

This look is not only streamlined but also relatively budget-friendly, costing $500 to $1,500, says J.B. Sassano, president of Mr. Handyman, a national home improvement franchise. Best of all, such seats will withstand the elements as well as the flooring underneath.

That said, don’t throw style and comfort under the bus. Make sure to add cushions and choose at least one statement piece of furniture with a “pop of color to reflect your personality and design taste,” suggests Sassano. Like this bright yellow chair for $140.

Light the way

If you plan to hang out on your deck well after sunset, fireflies aren’t going to cut it as a light source. Modernize—a website that empowers homeowners to get home improvement projects done—suggests simple ground lights ($28 each) to stringing fairy lights (starting at $15) to solar lights.

Don’t play with fire

Built-in or portable fire pits are warm, cozy, and “the source of deck fires. Whether embers blow out of the pit or the heat from the pit ignites the wood deck, the result is often tragic, with homes burned to the ground,” says Leys. Er, not such a great ROI. Place your fire pit in the backyard far from anything flammable. And to safely heat things up on your deck, buy a patio warmer ($150 to $400) says Sassano.

—————-

This article originally appeared on Realtor.com

Posted on April 10, 2016 at 11:18 pm
Denni Shefrin | Category: Home Maintenance, Homeownership Trends

Seattle metro-area home prices up nearly 10 percent in a year

Seattle-area home prices surged in December, posting the fourth-highest annual gain among 20 metros, according to the S&P/Case-Shiller 20-city index released Tuesday.

The average price of existing single-family homes sold in King, Snohomish and Pierce counties climbed 9.9 percent over the year in December, its fastest pace in 2015. In the 20-city index, Seattle trailed only Portland (11.4 percent), San Francisco (10.3) and Denver (10.2) in annual price increases.

Nationally, prices in the 20-city index climbed 0.8 percent over the month in December, slowing a bit from a 1 percent increase in November. The index recorded a 5.7 percent annual gain.

Home prices in all but one city are rising faster than inflation, said David Blitzer, chairman of S&P’s index committee. Some might take that as a sign of trouble, especially given the stock market’s turmoil this year and the current age of this economic expansion.

“The recovery is 6 years old, but recoveries do not typically die of old age,” Blitzer said in a statement.

Higher home prices are encouraging builders: “Housing construction, like much of the economy, got off to a slow start in 2009-2010 and is only now beginning to show some serious strength,” he said.

Average prices in the Seattle metro area in December were less than 3 percent below the peak set in summer 2007, according to Case-Shiller data. The 20-city index is still about 12 percent off its 2006 peak.

Svenja Gudell, chief economist at Seattle-based Zillow, the real-estate website, said in a statement that the nation’s housing market faces a few challenges this spring: Low housing inventory is a factor in nearly every market now. Low oil prices are a drag on job growth in the Dakotas, Alaska and Texas. And the stronger U.S. dollar will affect demand from foreign buyers, while keeping mortgage-interest rates low.

This article originally appeared in the Seattle Times.

Posted on March 3, 2016 at 9:29 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Local Market Update, Selling

Lack of inventory “a game changer” for home buyers

Depleted inventory is contributing to "overwhelming" traffic at open houses, shifts in strategies for both buyers and sellers, and escalating prices, according to officials with the Northwest Multiple Listing Service.

Dick Beeson, a former chairman of the MLS board, said the lack of inventory in almost every county is, "without question, a 2016 game changer." He described traffic at open houses as sometimes simply overwhelming. "There haven't been any battle royals on the premises, but it could happen any day now," quipped Beeson, the principal managing broker at RE/MAX Professionals in Tacoma.

The latest figures show a drop of nearly 28 percent in the number of active listings in the MLS database compared to a year ago. Members added 6,670 new listings during the month across 23 counties in the MLS service area. That's down nearly 4.6 percent from twelve months ago. At month end, members reported 12,357 active listings, which compares to 17,082 at the end of January 2015.

Measured another way, there is just under 2.5 months of inventory which compares to 3.8 months the MLS reported for January 2015. Supply was especially tight in King County, at 1.4 months of inventory, and Snohomish County, with just under 1.6 months.

Condo inventory (excluding single family homes) fell sharply, from 1,793 active listings a year ago to last month's total of 1,145 at month end, a plunge of 36 percent. In King County, the inventory of condos dropped 42 percent. 

For the area overall, there is just 1.7 months of condo inventory, with Snohomish County reporting the tightest supply (1.1 months) followed by King County (1.2 months).  

The inventory shortage took a toll on last month's sales. The number of pending sales (mutually accepted offers) fell about 5.3 percent area-wide during January, although half the counties in the report tallied increases compared to a year ago. The 5.3 percent drop marked the first negative change in year-over-year comparisons since April 2014.

Member brokers reported 7,253 pending sales last month, down from 7,658 for the same month a year ago. Despite January's downturn, industry leaders remain upbeat.

"Only three other Januarys since 2000 had more homes go under contract in the four-county region area of King, Snohomish, Pierce and Kitsap counties," noted Mike Grady, president and COO of Coldwell Banker Bain. "This, in the face of stock market scares, shows the viability of real estate as the better investment for both homeowners and investors," he suggested.

Commenting on last month's activity in King County, MLS director Joe Deasy said sales are down nearly 15 percent compared to last January because inventory is down more than 31 percent. "Demand is still really strong based on multiple offers and high-volume open house traffic," added Deasy, the co-general manager of Windermere Real Estate/East.

Other industry leaders agreed. "We're selling virtually all new listings, many with multiple offers in all the market areas of King, Snohomish, Pierce and Kitsap counties in the price range where 90 percent of the sales activity is happening," said J. Lennox Scott, chairman and CEO of John L. Scott.

Scott also said his analysis of the number of homes selling in the first 30 days is double what a normal, healthy market would look like.

"The Greater Seattle area housing market remains out of equilibrium," stated OB Jacobi, president of Windermere Real Estate. He said sales will continue to suffer at the current pace of transactions without adding new inventory. "At the same time, prices will continue to appreciate and could outperform our expectations if inventory levels and mortgage rates remain at current levels."

MLS director Frank Wilson said the Kitsap County market is "taking off again right out of the gate," adding, "We are seeing an increase in open house activity as well as more multiple offer situations."

Wilson said Kitsap County, where there is only 2.4 months of inventory, is "deep into a seller's market." He expects the market will become more unbalanced throughout the first half of 2016. "First-time home buyers are probably being hit the hardest in this type of market," observed Wilson, the branch managing broker at John L. Scott's Poulsbo office. In general, he said financial resources are thin for this segment, their confidence is low, and the types of loans they use are often not as favorable.

A strong fourth quarter in 2015 is reflected in January's closed sales of single family homes and condos (combined), which rose 11.6 percent from a year ago. Members reported 4,985 completed transactions; a year ago, they tallied 4,467 closings. The year-over-year median price on these sales increased 7.5 percent, rising from $279,000 to $300,000. Ten counties reported double-digit gains.

Single family home prices (excluding condos) jumped 7.6 percent from a year ago for the area overall. For the four-county Puget Sound region, the median price for a single family home rose 12 percent, from $325,000 a year ago to last month's figure of $363,975. Snohomish County reported the largest increase at 16.6 percent. A comparison of prices by county shows King County tops the chart with a median sales price of $490,970, up 11.2 percent from a year ago.

Condo prices spiked 16.3 percent from a year ago, rising from $219,900 to $255,750.

Rapidly rising prices and low inventory are worrisome, according to some brokers. 

"A true conundrum exists," said George Moorhead, designated broker at Bentley Properties. "For sellers there is no better time in history, but the concern we hear is there's no place to move." He said since most sellers are looking to move up to larger homes, the ripple effect is "more like a tidal wave as it rolls back to the first-time buyers in the market who are quickly getting priced out of the possibility of purchasing a home."

Moorhead, a member of the Northwest MLS board of directors, reported doing a recent search of homes for sale in Bellevue with asking prices between $500,000 and $800,000. That search yielded only about a dozen properties in the database, a result he described as "staggering" and well below the norm.

Despite such challenges and complaints by buyers, Moorhead said buyers are still presenting offers that are very aggressive.

The increasingly competitive market is prompting hesitation among some would-be sellers, reported Bobbie Chipman, principal managing broker at John L. Scott in Puyallup. She said potential sellers are expressing reluctance to list their existing home prior to finding a home to move into due to limited inventory.

"A strong strategy is for sellers to list their home, sell and close, and move into temporary housing," suggested Chipman, one of the MLS directors. "This approach allows offers to be written that are not conditioned upon their sale closing, and it strengthens their position as a buyer," she explained.

Echoing the notion of being flexible, Frank Wilson said a seller's decision to accept an offer does not come down to sales price alone. "Type of loan, lender, closing time, amount of earnest money, and other concessions like closing costs and offer price all play into a seller's decision," he stated. "On top of that, a seller can choose any offer for any reason, even a lower price offer if other variables are favorable. Escalation clauses, back-up offers and finding funds or a bridge loan are all tools that buyers will need to employ to be successful in today's market."

Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership of nearly 2,100 member offices includes more than 25,000 real estate professionals. The organization, based in Kirkland, Wash., currently serves 23 counties in Washington state.

This was a news release from the Northwest Multiple Listing Service.

Posted on February 18, 2016 at 7:18 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Local Market Update, Selling

King County Had Almost Half of 2015’s 30 Most Competitive Neighborhoods in America

 

We probably don’t need to tell you that 2015 was a crazy year in real estate, especially in our city. Bidding wars and listings lasting mere days on the market is something we’ve all grown accustomed to. But it turns out we’re not alone. Redfin recently came out with a list of the 30 most competitive neighborhoods from all across the U.S.. What’s the most mind blowing thing about this list? Of the 30 neighborhoods listed, 13 of them are in King County.

Top30Competitive-Neighborhoods-Table2

Seattle neighborhoods that made it onto this list are Roosevelt (4th), Phinney Ridge (9th), Stevens (11th), Greenwood (12th), Victory Heights (16th),Green Lake (17th), Madrona (20th), West Woodland (22nd). I mean, we all knew it was stormy out there, but this felt like a snow storm in Waikiki. It’s hard to say exactly what 2016 has in store, but our very own Chief Economist, Matthew Gardner, has a few ideas (such as expecting that housing in Seattle will continue to appreciate in value, but at a slightly lower rate than 2015).

Read more on Seattle Curbed.

This article originally published on Windermere Seattle's blog.

Posted on February 11, 2016 at 7:59 pm
Denni Shefrin | Category: Buying, Homeownership Trends, Selling

Will millennials be ‘perma-renters’?

Below is an article by Windermere's chief economist Matthew Gardner that originally appeared on Inman.com. He discusses millennials and the several factors have kept this generation renting, but they won't last forever.

Takeaways:

  • Many believe that millennials will continue to be renters and not homeowners for various reasons.
  • The first of the millennials were not even in a position to consider buying until roughly 2008.
  • Credit has become tighter for older buyers; therefore, the recent rise in first-time buyers actually can be attributed to millennials.

There has been a lot of buzz in the news recently suggesting that millennials will forever be renters and not homeowners.

Reasons for this theory are plentiful and include amenities that apartments offer, flexibility when it comes to moving and changing jobs, and inability to afford a home given the crushing student debt load that many are carrying.

So will this be the renter generation? Let’s take a look at the data.

Millennial homeownership rates

Those who believe in the “perma-renter” theory point to U.S. Census Bureau statistics that state the homeownership rate for individuals under the age of 35 has dropped from a peak of 43.6 percent in 2004 to 34.6 percent today.

Now, I can’t deny that this is a precipitous drop, but let’s not get carried away quite yet. To start with, the first of the millennials (born in 1982) were not even in a position to consider buying until roughly 2008. That accounts for four years of college followed by two years of work.

We all know that 2008 was a terrible year to buy a home, so let’s bring it forward a little further to 2012. At that time, the ownership rate was roughly 36.7 percent. Since then, it has dropped to the current level of 34.6 percent. This drop is hardly a drastic one, but it is a drop all the same — so what happened?

Fewer urban options

As mentioned earlier, some suggest that millennials are bypassing homeownership because they prefer to remain mobile and are drawn to the bells and whistles that modern apartment living offers.

I would add to this that urban life simply appeals more to younger people than living in the suburbs; especially to those who are just starting their careers and don’t yet have a family.

But the options to buy in many cities are few and far between. Since the Great Recession, there has been a shortage of new, for-sale multifamily development, which limits the availability of urban housing for buyers.

At the same time, new apartment projects are being built at a frenetic pace. According to REIS, 240,000 apartment units are scheduled to open their doors by the end of this year, which represents a 43 percent increase compared with 2014, and well over 100,000 units above the 10-year trailing annual average.

The makeup of first-time buyers

Now let’s turn to the National Association of Realtors’ data on the percentage of existing sales to first-time homebuyers. As the chart below shows, between 2008 and mid-2010, there was a rapid runup as a result of the first-time homebuyer tax credit.

After that program expired, the percentage naturally dropped and trended lower through the end of 2013. However, it’s clear that the share of sales to first-time buyers has been trending higher for the past 17 months. But not all of these buyers are millennials, so we need to dig a little deeper for answers.

Source: National Association of Realtors

To better understand the makeup of first-time buyers, I started by looking at their age distribution. There is some great data from the Federal Reserve Bank of Atlanta that sheds light on this through analysis of mortgage data and demographic attributes.

As is shown in the table below, first-time buyers are actually not getting older. Although their numbers tumble after the crash of the housing market, the age distribution did not change drastically.

Now, if we believe that the decline was driven by the millennials, surely we would have seen first-time buyers getting older, but interestingly enough, they didn’t.

Source: Federal Reserve Bank of New York

To add to this, analysis prepared by the Center for Real Estate Analytics suggests that the gap between median credit scores of younger buyers and older buyers has closed.

In other words, credit has become tighter for older buyers; therefore, the recent rise in first-time buyers actually can be attributed to millennials.

So, if credit quality isn’t the issue holding back millennials, and rents continue to increase at a frenetic pace, it stands to reason that we will see more and more members of this generation becoming homeowners.

I hope I’ve demonstrated that these broad statements that people are making about millennials being perma-renters are unfounded.

Are many of them delaying their purchasing decisions? It appears so, but I expect them to move into homeownership in greater numbers as they start to marry, have families or simply find themselves paying too much in rent.

So where are these millennials going to buy? I’ll tackle that topic in an upcoming post.

Matthew Gardner is the chief economist for Windermere Real Estate. He is the former principal of Gardner Economics and has over 25 years of professional experience both in the U.S. and U.K. Follow him on Twitter @windermere.

Posted on August 20, 2015 at 2:24 pm
Denni Shefrin | Category: Homeownership Trends

How Long Should They Last?

Nothing in life lasts forever – and the same can be said for your home. From the roof to the furnace, every component of your home has a life span, so it’s a good idea to know approximately how many years of service you can expect from them. This information can help when buying or selling your home, budgeting for improvements, and deciding between repairing or replacing when problems arise.

According to a National Association of Home Builders (NAHB) study, the average life expectancy of some home components has decreased over the past few decades. (This might explain why you’re on your third washing machine while Grandma still has the same indestructible model you remember from childhood.) But the good news is the life span of many other items has actually increased in recent years.

Here’s a look at the average life spans of some common home components (courtesy of NAHB).

Appliances.

Of all home components, appliances have the widest variation in life spans. These are averages for all brands and models, and may represent the point which replacing is more cost-effective than repairing. Among major appliances, gas ranges have the longest life expectancy, at about 15 years. Electric ranges, standard-size refrigerators, and clothes dryers last about 13 years, while garbage disposals grind away for about 10 years. Dishwashers, microwave ovens, and mini-refrigerators can all be expected to last about nine years. For furnaces, expect a life span of about 15 years for electric, 18 for gas, and 20 for oil-burning models. Central air-conditioning systems generally beat the heat for 10 to 15 years.

Kitchen & Bath.

Countertops of wood, tile, and natural stone will last a lifetime, while cultured marble will last about 20 years. The life span of laminate countertops depends greatly on use and can be 20 years or longer. Kitchen faucets generally last about 15 years. An enamel-coated steel sink will last five to 10 years; stainless will last at least 30 years; and slate, granite, soapstone, and copper should endure 100 years or longer. Toilets, on average, can serve at least 50 years (parts such as the flush assembly and seat will likely need replacing), and bathroom faucets tend to last about 20 years.

Flooring.

Natural flooring materials provide longevity as well as beauty: Wood, marble, slate, and granite should all last 100 years or longer, and tile, 74 to 100 years. Laminate products will survive 15 to 25 years, linoleum about 25 years, and vinyl should endure for about 50 years. Carpet will last eight to 10 years on average, depending on use and maintenance.

Siding, Roofing, Windows.

Brick siding normally lasts 100 years or longer, aluminum siding about 80 years, and stucco about 25 years. The life span of wood siding varies dramatically – anywhere from 10 to 100 years – depending on the climate and level of maintenance. For roofs, slate or tile will last about 50 years, wood shingles can endure 25 to 30 years, metal will last about 25 years, and asphalts got you covered for about 20 years. Unclad wood windows will last 30 years or longer, aluminum will last 15 to 20 years, and vinyl windows should keep their seals for 15 to 20 years.

Of course, none of these averages matter if you have a roof that was improperly installed or a dishwasher that was a lemon right off the assembly line. In these cases, early replacement may be the best choice. Conversely, many household components will last longer than you need them to, as we often replace fully functional items for cosmetic reasons, out of a desire for more modern features, or as a part of a quest to be more energy efficient.

Are extended warranties warranted?

Extended warranties, also known as service contracts or service agreements, are sold for all types of household items, from appliances to electronics. They cover service calls and repairs for a specified time beyond the manufacturer’s standard warranty. Essentially, warranty providers (manufacturers, retailers, and outside companies) are betting that a product will be problem-free in the first years of operation, while the consumer who purchases a warranty is betting against reliability.

Warranty providers make a lot of money on extended warranties, and Consumers Union, which publishes Consumer Reports, advises against purchasing them. You will have to consider whether the cost is worth it to you; for some, it brings a much needed peace of mind when making such a large purchase. Also, consider if it the cost outweighs the value of the item; in some cases it may be less expensive to just replace a broken appliance than pay for insurance or a warranty.

View the original article on Windermere's blog.

Posted on August 6, 2015 at 7:10 pm
Denni Shefrin | Category: Homeownership Trends

Homeownership Has Declined, But It Won’t Be Forever

Below is an article from Windermere's Chief Economist Matthew Gardner. He shares his views of the declining homeownership, and why he believes it won't be a lasting trend.

In addition to talking about housing bubbles, another topic that is becoming popular among housing scaremongers is the ongoing decline in the U.S. homeownership rate. Remarks range from the direct, “American homeownership is at its lowest level in more than two decades,” to the downright inflammatory, “Rental surge to drop homeownership rate to 61.3% by 2030”. When I read statements like this it always drives me to dig into the data to see what is really going on.

The data that everyone uses to track homeownership is provided by the U.S. Census Bureau, which publishes quarterly stats on ownership rates dating back to 1965. As you can see in the chart below, the rate remained remarkably stable between 1965, when it registered at 62.9%, and 1994, when it was 63.8%. For the purposes of this discussion, I have highlighted three presidential terms: two under President Clinton and President George W. Bush’s first term.

The “boom times” for housing essentially started after the election of President Clinton, who went to remarkable lengths to encourage homeownership. Readers may remember the 1994 National Homeownership Strategy when the President directed HUD to come up with a viable plan to increase homeownership. And it worked; during the Clinton administration, homeownership rose from 64.2% to 67.1%.

During his first term, President Bush continued the practice of encouraging homeownership, as it dovetailed with his Ownership Society goals. His, and President Clinton’s efforts, led to the highest home ownership rates on record, peaking at just over 69% (about 5% higher than record-keeping averages). But as we all know now, it also led to the burst of the biggest housing bubble in our nation’s history. Yes, ownership rates skyrocketed, but the market was artificially inflated and unsustainable. Home ownership rates have since dropped to 63.7%, but this is only marginally below the long-term average of 64.3. Hardly calamitous as some are suggesting.

That said, I do think that that the rate could fall a little further. Now, before you start blaming the Millennial generation, stop, because they are not the ones leading this charge. (As a side note, I do feel rather sorry for this group, as they appear to be taking the brunt of any and all economic woes at the moment.) If we look at homeownership rates by age, between 1994 and today, the decline in homeowners under the age of 35 is 2.5%. A palpable drop, but slight when compared to 35-44 year olds who have seen their numbers drop by 6% – from 64.4% to 58.4%. Why? Because this group took the largest hit following the housing crash, and many lost their homes to foreclosure.

Circling back to Millennials, it’s true that this group is more subdued relative to homeownership – and there’s good reason for it. Millennials comprise a smaller share of married couples and a higher share of in-city dwellers versus suburbs. But their lack of growth may well be offset by middle-aged families who are thinking about getting back into homeownership again. According to RealtyTrac, while Millennials have gotten a lot of attention lately as the generation whose below-normal homeownership rates are changing the landscape of the U.S. real estate market, the boomerang buyers — who are primarily Generation Xers or Baby Boomers — represent a massive wave of potential pent-up demand that could shape the housing market in the short term even more dramatically.

Data from Transunion supports this theory, suggesting that there are about 700,000 consumers who will become eligible to re-enter the housing market in 2015, and up to an additional 2.2 million potential buyers will requalify over the next five years. It’s likely that these so called “boomerang buyers” will become homeowners again, which will do its part to offset the Millennial drop, and raise the homeownership rate back up to its historic averages.

So, have homeownership rates declined? Yes, but as the data and this analysis show, taking a simple “peak-to-trough” view of homeownership figures does not necessarily provide accurate results. Regardless of how many scaremongers declare otherwise.

Visit the Windermere blog for the original article.

Posted on July 23, 2015 at 8:12 pm
Denni Shefrin | Category: Homeownership Trends | Tagged , , , , , , , ,