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Economists are having a tough time figuring out what housing market moves baby boomers will make next. Americans over the age of 55 are veering from previous generations, opting not to retire but instead launching second or even third careers. They are shunning the traditional patterns of retirement and that could have a big impact on their housing choices, according to Freddie Mac’s latest Insight report focusing on the baby boomer generation.
Baby boomers are a critical piece to the housing market puzzle. Americans over the age of 55 make up a quarter of the population and control about two-thirds of the single-family home equity in the nation. Sixty-five-year olds who, on average purchased a home 35 years ago now tend to have a home value that is likely 3.7 times what they purchased it for.
Nearly a quarter of baby boomers recently surveyed by Freddie Mac say they need major renovations in their current home in order to stay there as they age. Many say they may face financial constraints to take on those remodels. For others who do plan to age in place, they may be underestimating the extent of the financial costs of outfitting their home with features so they can do so, says Sean Becketti, Freddie Mac’s chief economist.
As such, about 18 million home owners over the age of 55 may be shopping for another house in the next few years, according to the Insights Report.
The main reasons to move aren’t due to downsizing either. Instead, the survey showed the key influences making these generations move are: Affordability of the community, the need for retirement amenities, and a home with less maintenance.
Bottom line, the authors note, the 55-plus population likely is to be an active part of the housing economy for years to come still.
Source: “Boomers Ignoring Conventional Housing Wisdom,” Mortgage News Daily (July 19, 2016)
Thursday |Fears about the effect of rising interest rates on housing markets prove to be misplaced. Affordability is a far more worrying issue.March 2016 | By Robert Freedman
The Federal Reserve at the end of 2015 increased its benchmark interest rate for the first time in almost a decade and home buyers responded with a big . . . ho-hum.
“Buyers are complacent on interest rates,” says Mike Smith, ABR, SRES, associate broker at Nothnagle, REALTORS®, in Geneseo, N.Y.
Real estate professionals say the 0.25 percent increase in the rate that banks charge each other for overnight loans is not spurring home buyers to jump into the market out of concern that mortgage rates are going to follow suit. “Buyers are keeping an eye on interest rates, but they’re not worried about them,” says Don McGlynn, associate broker at Maury Real Estate in Bethesda, Md.
The rates that matter most in real estate are those on 15- and 30-year fixed-rate mortgage loans and one-year -adjustable-rate loans. And although the direction of mortgage rates can be affected by movement in the Fed’s short-term rate, many other factors go into whether they move up or down and by how much. “There’s not a one-to-one correlation” between the different rates, says NAR Chief Economist Lawrence Yun.
Yun listed five factors in addition to the federal funds rate that impact the direction of mortgage rates:
- The rate of inflation
- The nation’s savings rate
- The flow of foreign capital into the United States
- The federal government’s debt and annual budget deficit levels
- The country’s overall economic strength
There are times when changes in the federal funds rate can be more influential on mortgage rates than at other times, says Yun, most notably during periods of prolonged economic stability. During stable periods, if the Federal Reserve sets an interest rate target and then consistently takes preannounced steps to meet that target, banks are able to anticipate rate increases. That creates a closer correlation, he says, between the federal funds rate and other interest rates.
Yun says it’s a sign of the U.S. economy’s strength that the Federal Reserve chose to start a process of gradual short-term rate increases late last year. “It was important to the Fed’s credibility that it raise rates while the country’s economy is growing, albeit slowly, and jobs are being created,” he says.
But the Fed also wanted to wean individuals and institutions off riskier investments. “The prolonged period of rates at or near zero that we’ve seen since about 2008 has driven investors to find higher yields, and the concern is that that can lead to inflating asset prices,” Yun says.
McGlynn says mortgage rates would have to go up by one or two percentage points before buyers in his market would really start to take notice. “If mortgage rates went up by two percentage points, that could affect some buyers,” he says. “That might scare them a little bit. But rates are so low now that, as long as they stay under 6 percent, most of the buyers I work with won’t be affected.”
As of mid-February, the national average commitment rate on a 30-year fixed-rate loan was just under 3.7 percent, the 15-year fixed-rate mortgage was 2.95 percent, and the one-year ARM (with a five-year fixed term) was 2.8 percent.
Yun is forecasting the rate on a 30-year fixed loan to rise to 4.3 percent by the end of the year and then to about 5 percent at the end of 2017. These are “very low by historical standards,” he says.
And if the Federal Reserve, worried about the slowdown in China and in other parts of the world, decides not to keep bumping up its short-term rate this year, as it originally planned, mortgage rates might not see even those modest increases, he says.
The bottom line: More worrying than interest rates these days is pace of home price appreciation, which is fueled largely by insufficient inventory for a growing population. Home prices are rising about 7.5 percent annually on average, while household income is only rising by about 2 percent, Yun says. That mismatch is hurting affordability now and will continue to do so until more homes are built. That remains a far bigger concern than rising interest rates.
The New York Times is dubbing the reverse mortgage the “quiet comeback” kid in the mortgage marketplace.
Reverse mortgages allow home owners 62 years old or older to tap into their home equity without having to face monthly payments. Reverse mortgages had a bad reputation a few years ago when widespread abuses of their use was reported. But now they’re gradually making their way back into the market, as reforms in the system make them a safer option for lenders. The Federal Housing Administration and the Consumer Financial Protection Bureau have tightened regulations on their use.
Reverse mortgage volume was around 30,000 this year, modest compared to about 115,000 from its peak in popularity in 2009, according to the Federal Housing Administration.
“They’ve always been there as a last resort,” John Salter, a financial planning professor at Texas Tech, told The New York Times. “But they make a lot more sense now because home equity can be a big part of net worth.”
More financial planner are starting to recommend them due to the lowers costs and better consumer protections – such as the mandate that counseling is now required, says Jamie Hopkins, a professor at the American College of Financial Services.
“Many people don’t have enough money to get through retirement, so they have to consider all of their wealth, including home equity as a retirement income source,” Hopkins says.
Still, reverse mortgages aren’t right for everyone. “If you want to provide a bequest to your heirs by allowing them to sell your home upon your death, a reverse mortgage can wipe out much of the equity in your home,” The New York Times reports. The loans also can prove more challenging for those who need to move due to a disability or need to sell their home after a short period of time living there.
Source: “The Quiet Comeback of Reverse Mortgages,” The New York Times (July 22, 2016)
23Daily Real Estate News | Thursday, August 18, 2016
Do you know a Georgian from a Greek Revival? Brush up on your home architecture knowledge with this infographic below spotlighting the features and differences between some of the most popular home styles today.
The “starter home” trend may be fading in real estate. Prior to the housing bubble, first-time buyers with average incomes would shop for a more affordable, smaller house with the idea of moving on to a larger home in a few years.
Starter Homes: Are They Over?
Today’s first-time buyers want a home that meets their needs now and in the future. Seventy-five percent of first-time buyers say they prefer to skip the starter home and find a house that meets their long-term needs, according to a survey commissioned by Bank of America in early 2016. Thirty-five percent say they even intend to stay in that home until they retire.
First-time buyers nowadays tend to be higher earners, due to rising home prices and tighter housing inventories. As such, these higher earners desire fancier homes.
In 2013, first-time buyers purchased homes with an average of 1,845 square feet. The average home in the U.S., meanwhile, is just 1,819 square feet, according to BuildZoom, a real estate construction firm’s analysis of data from the Census Bureau.
“So those home buyers who probably would have been looking for the lowest-end homes 10 years ago during the housing boom are today just not able to buy. And those that are able to buy are looking further upmarket,” says Issi Romem, chief economist for BuildZoom.
Many first-time buyers aren’t planning to upgrade and move on in five years, like they once did. They plan to stay put.
“When they do purchase, they’re planning on living there longer than buyers that we’ve seen in the past,” says Jessica Lautz, NAR’s managing director of survey research. “They’re expecting to live there 10 years.”
Source: “More First-Time Buyers Skip Starter Home Stage for Bigger, Better,” USA Today (July 17, 2016)
Mortgage rates across the board ticked up this week, but still hover near historical lows.
“Post-Brexit volatility tapered off over the last two weeks, allowing interest rates to bounce back a bit from their record (10-year Treasury yield) and near-record (30-year mortgage rate) lows,” says Sean Becketti, Freddie Mac’s chief economist. “This week, the 30-year fixed mortgage rate increased 3 basis points to a still-quite-low 3.45 percent. With the Federal Reserve on hold and the UK monetary authority taking at least a one-month breather, we don’t expect any significant movement in mortgage rates in the near-term. This summer remains an auspicious time to buy a home or to refinance an existing mortgage.”
Freddie Mac reports the following national averages with mortgage rates for the week ending July 21:
- 30-year fixed-rate mortgages: averaged 3.45 percent, with an average 0.5 point, rising from last week’s 3.42 percent average. Last year a this time, 30-year rates averaged 4.04 percent.
- 15-year fixed-rate mortgages: averaged 2.75 percent, with an average 0.5 point, rising from last week’s 2.72 percent average. A year ago, 15-year rates averaged 3.21 percent.
- 5-year hybrid adjustable-rate mortgages: averaged 2.78 percent, with an average 0.5 point, climbing from a 2.76 percent average last week. A year ago, 5-year ARMs averaged 2.97 percent.
Source: Freddie Mac
Buyers on the hunt for the perfect home often overlook common issues that could cost them thousands of dollars and give them buyer’s remorse later on.
As their real estate professional, your guidance can help clients focus on these four often-forgettable things during their house hunt:
Not taking into account all of the expenses of home ownership.
“People focus so much on mortgage payments and closing costs,” says Brendon DeSimone, author of “Next Generation Real Estate. “What they don’t realize, until after the fact, is that there are expenses like oil or propane and landscaping that are built into home ownership.” Home buyers should ask sellers for a property expense list to get a better gauge of what they’ll be paying each month. Also, financing experts often suggest setting aside 1 percent of the home’s total value annually for repairs and maintenance.
Failing to consider a home’s resale value.
Few buyers actually stay in their home for decades. Buyers should talk to their real estate agent about trends in the neighborhood and the likelihood that the home would sell for the same amount two years, five years, or 10 years down the road, Avery Boyce, a real estate professional with Compass Real Estate in Washington, D.C., told realtor.com®. “Buying a home should make financial sense now, but if circumstances make this home no longer the right one within a few years, you don’t want to be in a tricky financial situation while trying to sell,” Boyce says.
Not investigating the neighborhood more closely.
Make sure your home buyers also closely inspect the neighborhood too. DeSimone suggests that home buyers walk around the neighborhood at different times of the day. Talk with the neighbors too.
Failing to look into the homeowners association.
“Never close on a home without doing serious due diligence on the homeowners association,” says DeSimone. Many HOAs can be supportive, but there have been reports of a few cases where home owners have clashed. Also, it’s important to note if there are a lot of delinquent home owners in the neighborhood because “if there is an upcoming assessment, or there are delinquent home owners, the HOA and you will have to cough up the money to cover it,” DeSimone says.
Source: “6 Things Home Buyers Forget to Do: Did You Forget Them Too?” realtor.com® (July 26, 2016)
Friday |Daily Real Estate News | Friday, August 05, 2016
Baby boomers say first impressions count when they enter a new community. They are closely sizing up neighborhood amenities like the pool, clubhouse area, and walking trails. They’re also looking at the location of the community, judging how near it is to shopping, dining, medical services, and entertainment.
Hanley Wood and home builder Taylor Morrison identified what the 55-plus age group of home buyers are searching for in a home through surveys and focus groups. At 77 million strong, baby boomers are expected to continue to have a major impact on the housing market for years to come, and builders are closely paying attention to what they want in their home.
Baby boomers say that space is very important to them in their home-buying decision, and they seek a home with openness and flow. Just how big of a home do they want? The Home Buyer Study conducted by the Farnsworth Group found that:
- 18.1% want a house under 2,000 square feet
- 48.6% want a house between 2,000 and 2,999 square feet
- 20.8% want a house between 3,000 and 3,999 square feet
What’s more, 81 percent say they find more space in a less populated community more appealing than having less space in a more populated community.
Baby boomers also are looking for large common spaces with open floor plans, high ceilings, and natural light, the surveys showed. Integrated indoor and outdoor space also was important as well as sheltered areas, native plants, sustainable and energy efficient technology and materials, and sufficient storage space.
“Information gleaned from the focus group helps set the stage on what the 55+ home buyer desires in a new home and how the industry should be building its homes,” says John McManus, Editorial Director of Hanley Wood’s Residential Group. “These influential buyers want a fresh start in a vital, connected, accessible new-home environment. And, as millions of baby boomers across the country begin the next phase of their lives, buying the right home is top of mind for them.”
Source: “What Boomers Want Most,” BUILDER (Aug. 4, 2016)
The housing market heated up in July, with several factors favoring buyers this summer.
Jonathan Smoke, realtor.com®’s chief economist, says these factors have made this summer one of the best in a decade: we’re seeing the highest consumer confidence for a July since 2007, we’ve also had the highest nominal home prices for a July on record, and we’ve had the lowest July mortgage rates on record.
Millennials, aged 25 to 34, picked up their presence on the market this summer too. Realtor.com® reports that last July 75 percent of its 25- to 34-year-old users were looking to purchase a home. Fast-forward to July 2016, that percentage has bloomed to 81 percent.
Buyers are finding a few more choices later in the summer: There are 1 percent more homes for sale in July compared with June.
But hurdles do remain for buyers this summer: It’s tougher to get approved for a mortgage than last year, Smoke notes. In July 2015, 5 percent of first-time buyers reported that qualifying for a mortgage was a significant hurdle. This July, that percentage has increased to 9 percent, Smoke reports.
Also, repeat buyers say their major challenge is finding a home to buy. The share of repeat buyers who say “finding a home” is a problem rose to 25 percent this July, realtor.com® reports.
“The good news for would-be buyers who have struggled to find a home or have been outbid in prior attempts is that the balance of power shifts a bit more in your favor in late summer and fall,” Smoke writes in his column at realtor.com®. “This is the time of the year when sales slow down, but inventory is at its peak. That means there are more homes for sale per buyer now, and yet mortgage rates remain close to their all-time lows. The window to enjoy the best summer in a decade for real estate remains open for the well-qualified and those ready to act.”
Source: “Finally, a July to Remember – and to Buy a Home,” realtor.com® (Aug. 4, 2016)
Fannie Mae announced that it has changed income maximums and some eligibility criteria for its HomeReady mortgage program that it believes will allow more borrowers to qualify for a mortgage with as low as a 3 percent down payment.
In a statement, Fannie Mae says that it will continue to evolve the program as well in helping to “expand access to credit responsibly and promote successful home ownership.”
Fannie Mae detailed the following changes in a recent statement:
- Borrowers who occupy the home will now be allowed to own other residential properties as well.
- Fannie Mae has increased income limits to 100 percent of an area’s median income in all areas, except low-income market tracts that will have no limit. Fannie officials say this will make it easier for lenders to determine eligibility for the program and help more buyers take advantage of the mortgage program.
- Fannie Mae is offering more counseling options and will now accept one-on-one pre-purchase advising from HUD-approved providers to meet HomeReady’s home ownership education requirement. Fannie Mae plans to soon offer lenders a $500 credit to urge borrowers to take advantage of a more personalized support option in fulfilling their education requirement.
Source: Fannie Mae and “Fannie Mae Upgrades 3 Percent Down Mortgage Program,” Mortgage News Daily (July 27, 2016)