Millennials & Home Buying

Millennials are the largest generation in the U.S. and, according to MarketWatch, they’re the largest generation to ever enter the the housing market, currently at 17 percent. A few more facts:

  • They make up more than 30 percent of all homebuyers
  • 90 percent purchased in a major city
  • 80 percent consider home buying a good investment
  • A high percentage have a DIY attitude when it comes to research
  • Many have high student debt
  • On average it takes 12 and a half years to save for a down payment

Home Inventory Rises

Zillow’s October Real Estate Market Report states that the number of home for sale in the United States increased by 3 percent last month, compared to the same period in 2017. This is the first increase in home inventory in nearly four years.

Many of the country’s hottest markets saw the biggest increase in inventory, led by San Jose where 1,500 were added to the market in Ocotber. San Francisco, San Diego, and Seattle also saw significant increases in homes for sale.

Home value appreciation remained steady in October at 7.7 percent.


The impact of student loans

Zillow’s latest Housing Aspirations Report finds that the average monthly student debt payment for renters who hope to buy a home int he next year is $388. Figuring on spending no more than 30 percent of their income on combined student debt and housing, the maximum priced home they could afford would be $269,400 which represents 52.3 percent of the homes nationwide that are for sale.

Conversely, if they had no student debt they could afford a hoe worth $361,00 which is 66.4 percent of the homes currently listed for sale.

Of course, in the Bay Area the numbers are much different where buyers with student debt can only afford 11.7 percent of the homes for sale.

Nationwide, 33.9 percent of renters who say they are planning to buy a home have some form of student debt.


Looking to buy in a metro area? Think Pittsburgh…

A new report from combines the National Association of Realtors’s quarterly home price data with local property tax and homeowner’s insurance numbers to come up with the income needed to buy a median-priced home in the market.

The most affordable:

  • Pittsburgh: Salary needed – $38,880
  • Oklahoma City: Salary needed – $40,917
  • Cleveland: Salary needed – $40,997

The east affordable:

  • San Jose: Salary needed – $256,877
  • San Francisco: Salary needed – $200,025
  • San Diego: Salary needed – $132,420

Real Estate Investing: The Pros

With the craziness of the real estate market, this might be a good time to consider real estate investment, i.e., where the property generates income instead of being a primary residence,

  1. Cash flow from rents: Higher rents these days are generally greater than mortgage payments.
  2. Long-term security: Real estate appreciation (see below) should bring in a guaranteed cash flow for years to come.
  3. Appreciation: Real estate properties are considered one of the most reliable sources of renewable capital as they tend to increase in value over time.
  4. Hedge against inflation: As inflation occurs the property’s value and rental income will also increase. However, the mortgage will remain the same.
  5. Tax benefits: Rental payments are not subjected to self-employment taxes and there may be other benefits such as depreciation and lower tax rates.

The recovery is far from complete

With the booming real estate markets in the Bay Area, particularly San Francisco and San Jose, it’s easy to overlook the fact that nationwide, areas that experienced the highest rate of foreclosure during the previous recession have still not fully recovered. In fact, across the largest 35 metro areas, only 39 percent of homes in sections with the most foreclosures have fully recovered.

Overall, 21 of the largest 35 metro areas have recovered their pre-recession peak median home values. Nationwide, median home values are approximately 9.8 percent above what they were at the bubble’s peak. Yet, many economists are concerned that a significant number of homes will not recapture their pre-recession value before the next downturn eventually comes.


Economic forecast: Good news

A recent talk by Lawrence Yun at the Realtors Conference & Expo highlighted the need for new housing inventory and expressed confidence that the real estate market would remain strong. He predicted that around 6 million home sales by the end of 2018 and slightly more in the next few years.

Moreover, home prices will continue to increase but at a modest rate: 4.7 percent this year, 2.1 percent in 2019 and 2.7 percent in 2020.

Yun saw no signs of a housing bubble as the overall economy is strong, the quality of mortgages remains high and there is no danger of overbuilding as in 2008.

The one caveat is the risk of a full-scale trade war which would hurt economic growth and lead to higher interest rates which could move the economy closer to a recession.


The changing demographics of homeownership

The days it seems as if everything is changing when it comes to homeownership. According to a recent study by the Stanford Center on Longevity, millennials are waiting until 30 or so to get married. This means they are having families later and buying a home later.

Currently, the homeownership rate at age 30 is approximately 36 percent whereas 49 percent of baby boomers had purchased a home by age 30.

Of course, the reasons are many. Young adults are now saddled with an average of $30,000 in student debt, housing prices continue to rise and, although the economy remains strong, wages are not commensurate with home appreciation.


Old Home vs. New Home

Old home pros:

  • Charm
  • Less expensive
  • Larger lots
  • Mature landscaping
  • Lower property tax

Old home cons:

  • Expensive to maintain
  • Old appliances
  • Fewer amenities

New home pros:

  • Modern amenities
  • Warranty from builder

New home cons:

  • More expensive, higher property tax
  • Shoddy workmanship
  • Poor landscaping

Saving for a down payment? Better start now…

In the last 20 years home values have gown nearly twice as fast as incomes: 98.6 percent for home, 52.6 percent for incomes. Not surprisingly then it is it taking longer and longer to save that 20 percent down payment.

These days it takes an average of 7 years to save for a down payment. This is undoubtedly why only 43 percent of would-be buyers say they using savings exclusively for down payments. The majority of buyers rely on other sources of money such as the sale of a previous home or gifts from family and friends.

To put things in perspective, the median household income is $118, 061 for the median price for a home is now $1,287,600 meaning it would take 22 years to come up with a 20 percent down payment!