Homebuyers More Concerned About Affordability Than the Lack of Homes for Sale

by Katy Klein | December 29, 2014

For the first time since early 2012, homebuyers said that affordability is a bigger concern for them than a lack of homes for sale. Although inventory was down 1.5 percent in November from last year, 32.6 percent of homebuyers who responded to the Redfin Real-Time Buyer Survey indicated that “affordability in the area I want to buy” was the biggest obstacle to a home purchase. Just 11.3 percent said the biggest obstacle was “not enough homes for sale.”

“If you can’t afford any of the homes for sale, it doesn’t matter how many homes are on the market,” said Leslie White, a Redfin agent in Washington, D.C. “Despite the low interest rates, prices in D.C. are so high right now, many homebuyers feel priced out of the market. They’re being forced to decide between putting their home search on hold and renting another year, buying a significantly smaller home or looking in neighborhoods farther away from the city.”

The good news for homebuyers is that the supply of homes under $300,000 is likely to increase next year as more homeowners have enough equity to sell. This year, prices for homes in the low to mid-range (generally below $310,000) increased by 12 percent, double the price increases for more expensive homes. Those increases have helped homeowners: We estimate that, in 2015, 90 percent of homeowners will owe less than 80 percent of their mortgage, which makes listing much more attractive and could result in a 5 to 7 percent increase in affordable homes for sale.

Buyers Expect Prices to Rise a Little in 2015

Redfin predicts that home prices will slowly rise in 2015, increasing by 3 percent throughout the year. The majority of respondents agreed; 58.9 percent of buyers said that home prices will “rise a little” in 2015.

Homebuyers Felt Fall Was A Better Time to Buy This Year Than Summer

The percentage of homebuyers who said now is a good time to buy improved a bit from earlier this year, increasing to 29.2 percent from 22.9 percent this summer. But this is still down from two years ago when home prices were more affordable and there were more homes for sale.

In the first quarter of 2014, we asked buyers about their home-buying plans, and 39.3 percent said they planned to buy a new home and then rent out their current home. In the fourth quarter, that number dropped slightly to 34 percent of buyers.

Short Commute and Nearby Amenities Top Priorities for Buyers

Buyers responded that they value a short commute and being close to amenities such as coffee shops (36.3 percent) and living in a highly rated school district (21.1 percent) the most when looking for homes.

Putting in the Elbow Grease

More than three-quarters of buyers (81.9 percent) said they are willing to do some work to their new home, whether they plan to do it themselves or hire professionals. Only 18.1 percent said they need a move-in ready home.

About the Survey

This survey was conducted between December 6 and 10, 2014. Survey respondents included 1,308 Redfin home-buying customers. Respondents spanned 30 markets in the U.S., including: West: Denver, Los Angeles,Las Vegas, Orange County, CA, Phoenix, Portland, Riverside-San Bernardino, CA, Sacramento, San Diego, San Jose,  San Francisco, Seattle, Ventura County, CA; South: Atlanta, Austin, Baltimore, Charlotte, Dallas – Fort Worth, Fort Lauderdale, Hampton Roads, Houston, Miami, Orlando, Raleigh,  San Antonio,Tampa, Washington, D.C.; Midwest: Chicago, Minneapolis; Northeast: Boston, Hudson Valley, Long Island, Philadelphia.

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How the 2014 Housing Market Will Shape 2015

How the 2014 Housing Market Will Shape 2015

Daily Real Estate News | Wednesday, December 24, 2014

The real estate market has shown a build-up of housing momentum this year – “fueled by significant improvements in economic fundamentals, low mortgage rates, and compressed inventory” – that will likely translate into larger gains in 2015, according to realtor.com®’s newly released 2014 Housing Review.

“Many of the gains that we recently predicted in the realtor.com® 2015 Housing Forecast are built on housing growth established in 2014,” says Jonathan Smoke, realtor.com®’s chief economist. “Overall, this year’s housing market showed steady advances over 2013 with significant improvement in key housing metrics, despite some remaining challenges. Increases in job creation and gross domestic product (GDP) have had a significant impact on consumer confidence and home buyer demand. Paired with historically low interest rates, these factors kept properties moving quickly with median time on market at approximately 90 days. Unfortunately, the low number of homes for sale and stringent lending standards prevented a normal number of first time home buyers from closing on their first home in 2014.”

Here are some of the trends realtor.com® notes from 2014 that will help drive a stronger 2015:

1. An improving economy: “After an especially harsh winter earlier in the year, the economy picked up steam and produced a banner year for new jobs,” realtor.com® notes in its report. “The GDP this year was higher, and is still trending higher, resulting in stronger consumer confidence.”
2. Low mortgage rates: Despite the end of the Federal Reserve’s quantitative easing this year, mortgage rates continued to decline and helped to lower borrowing costs of home buyers. In recent weeks, the 30-year fixed-rate mortgage has been below 4 percent.
3. Returns to normal price appreciation: “After two years of abnormally high levels of home price appreciation in 2012 and 2013, price increases moderated throughout 2014,” realtor.com® notes. “We are now experiencing increases in home prices consistent with long-term historical performance.”
4. Distressed sales decline: Foreclosures and short sales fell throughout the year. Foreclosures are projected to be down 30 percent year-over-year at the close of 2014.
5. Investor activity lessens: Coinciding with the drop in distressed sales and higher home prices, large-scale investor purchase activity in the single-family market decreased. Less competition from investors may offer more room for traditional first-time buyers to squeeze into the market.

However, the realtor.com® report notes several factors that continue to plague the housing recovery and prevent it from being stronger, including:

1. Tight credit standards: “Despite historically low rates, many households were prevented from capitalizing on mortgage access because of overlays lenders added to qualification standards in order to limit put-back risk,” realtor.com® notes. “A tight spread between approved and declined FICO scores shut out nearly half of the potential population this year. As a result, mortgage credit availability did not improve in 2014.”
2. Tight inventories of for-sale homes: Inventories did rise this year, but supply failed to outpace demand. The monthly supply of new homes and existing homes continued to fall beneath normal levels, and the age of inventory was down year- over-year.
3. Fewer first-time buyers: The share of first-time buyers dropped to the lowest level in nearly 30 years, according to the National Association of REALTORS®. “But the first-time buyer share is showing signs of modest improvement by the year-end,” says Lawrence Yun, NAR’s chief economist. Federal policy actions, such as revised regulations for lenders and new low down-payment programs introduced in December, are believed to have a positive impact in increasing first-time home buyer share in 2015.
4. Record levels of renters: The home ownership rate continued to fall this year as the number of renters increased. Rent increases have become an inflationary concern this year, and the pace of rental increases does not appear to be slowing down.
5. Sluggish new-home building: Single-family new-home starts barely budged in 2014 compared to 2013. New home sales remain far from normal levels. They are typically near 16 percent and instead remain around 9 percent. Still, new home prices rose substantially again this year, revealing that higher priced product is limiting the demand.

Source: realtor.com®

Habitat for Humanity Retools Game Plan

Nonprofit Group Places More Emphasis on Renovating Homes in U.S.

The Wall Street Journal | by Kris Hudson | posted December 9, 2014

Habitat for Humanity International isn’t building as much new habitat as it used to.

Facing rising land prices, the 38-year-old charity, which provides homes for low-income families, is placing more emphasis on buying and renovating existing homes in the U.S.

The number of homes Habitat renovated in the U.S. more than doubled to 1,435 in its 2014 fiscal year that ended June 30 from 2008, according to the group. New construction, meanwhile, declined 31%, to 3,323, in 2014 from 2008.

The main culprit: land prices, which have increased at double-digit percentages since 2012, making building more expensive. A typical Habitat home has three bedrooms and sells for an average of $80,000 to $100,000, regardless of whether it was built from the ground up or renovated.

“The biggest part is land,” said Habitat Chief Executive Officer Jonathan Reckford. “If we can’t get it donated, we have to buy land. And that becomes a big part of the cost.”

In response, Habitat is buying less land and building fewer homes in favor of buying existing homes, many of them foreclosures, to be renovated. The organization doesn’t have an estimate for how much cheaper the latter option is, given the many variables involved, but it does add that more homes have been donated to it in recent years for the renovation program.

Habitat’s struggle with land prices mirrors that of other home builders and highlights a factor inhibiting home construction. The recession and housing crisis brought residential land development to a halt in much of the U.S. It since has taken many years for land development to regain momentum, and it still has much to recapture. This year, the pace of construction of single-family homes hasn’t exceeded 68% of its annual average since 2000, Commerce Department data show.

Meanwhile, prices shot up for the few available home lots ready for construction in most markets. A quarterly survey of land developers conducted by housing-research firm Zelman & Associates found that home-lot prices started increasing at double-digit-percentage rates, on a year-to-year basis, in the third quarter of 2012.

Growth in lot prices peaked at 24% in 2013, according to Zelman. It since has cooled to a 13% gain in this year’s third quarter from a year earlier.

Land typically can represent no more than 20% to 25% of a home’s price in order for the builder to reap an acceptable return on the project, though the figure varies by market. If that portion of the cost is increasing at double-digit-percentage rates, it pushes up the home’s cost, often by a smaller amount, and squeezes the builder’s profit.

“Land prices have inflated so much that [builders] can’t get the return that they need to justify buying land at today’s prices to build an affordable housing product,” said Zelman CEO Ivy Zelman. Rising land prices are one of several reasons why many U.S. builders have limited their construction to larger, more expensive homes, which make it easier to cover rising land costs.

For Habitat for Humanity, the nonprofit group is doing fewer land deals, because high land prices make it challenging, if not impossible, to build affordable housing without incurring a loss.

Habitat, a Christian-based organization based in Atlanta, aims to provide housing to low-income families, and most of its construction is done with volunteer labor.

Buyers are required to spend several hours helping to build their home or others. They receive from Habitat no-interest mortgages for the cost to produce the house, with payments tailored not to exceed 30% of a family’s income.

Though founded and based in the U.S., Habitat does most of its work elsewhere. Its volunteers built 12,652 homes and renovated 4,832 existing homes outside the U.S. in its last fiscal year.

As prices for existing buildable lots rose, Habitat turned to the glut of foreclosed and vacant homes generated by the housing crisis. The number of completed foreclosures in the U.S. has receded from its recent peak in 2010 but still amounted to roughly 470,000 in this year’s first 10 months, more than twice the annual average from 2000 to 2004, according to CoreLogic Inc., a data and analytics firm.

Habitat also became a recipient of grants from the U.S. Department of Housing and Urban Development’s Neighborhood Stabilization Program, created in 2008 to help renovate vacant and abandoned homes. Habitat officials estimate the organization and its affiliates collected $300 million from the program, which it applied to shoring up vacant homes to be sold to families.

“If there are a lot of available, foreclosed homes in your communities, you probably want to work toward putting those back into service [rather] than on new construction,” said Sue Henderson, Habitat’s vice president for the U.S. and Canada.

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Ten Housing Markets to Watch in 2015

Ten Housing Markets to Watch in 2015 | By Jed Kolko | posted December 5th, 2014
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As the rebound effect fades and the recovery from the housing bust continues, Trulia’s 10 markets to watch have strong fundamentals for housing activity. These include solid job growth, which fuels housing demand, and a low vacancy rate, which spurs construction. We gave a few extra points to markets with a higher share of millennials. These young adults are getting back to work and that will drive household formation and rental demand. We didn’t include markets where prices looked at least 5% overvalued in our latest Bubble Watch report. Here are our markets to watch, in alphabetical order:

1. Boston
2. Dallas
3. Fresno, Calif.
4. Middlesex County, Mass.
5. Nashville, Tenn.
6. New York-New Jersey
7. Raleigh, N.C.
8. Salt Lake City
9. San Diego
10. Seattle

These markets are spread across the country: Boston, Middlesex County (just west of Boston), and New York in the Northeast; Dallas, Nashville, and Raleigh in the South; and Fresno, Salt Lake City, San Diego, and Seattle in the West. No Midwestern metros make the list because they generally have slower job growth and higher vacancy rates than other markets, even though many are quite affordable and prices are rebounding.

In 2015, more markets will settle back into their long-term housing patterns. Fast-growing markets that boomed last decade, collapsed in the bust, and then rebounded are now leveling off. Even the markets that have been slowest to recover and have struggled longest are seeing foreclosure inventories decline and the sales mix moving back toward normal.

At the same time, first-time homeownership, single-family starts, and new home sales won’t come close to fully recovering in 2015. But if 2015 brings strong job growth, big income gains, and the long-awaited jump in household formation, then 2016 could be the year when we see a major turnaround in homeownership and single-family construction.

Jed Kolko, Trulia’s chief economist, earned a Ph.D. in Economics from Harvard University and provides insight on market trends and public policy to media outlets including Time magazine and CNN.

Zillow: Millennials to Step Up Homebuying in 2015

U.S. News & World Report | By Katherine Peralta | December 2, 2014

Industry watchers have bemoaned millennials’ homebuying hesitance as holding back the market, but one group says 2015 will be the selfie generation’s breakthrough year.

Millennials will surpass Generation X as the biggest homebuying generation as the growth in home values decelerates and rents continue to rise, according to 2015 predictions released Tuesday from real estate information firm Zillow.

“What we’ve been talking about isn’t that millennials are eschewing housing all together, it’s that they’re delaying life decisions that lead to the consumption of owner-occupied housing,” says Stan Humphries, Zillow’s chief economist. “But we think that fundamentally they want to own homes, they’re just not making the life decisions that lead to homeownership. Until now.”

[READ: Homeownership for Millennials Declines to Historic Lows]

Humphries says millennials’ delaying of homeownership is cyclical and structural in nature: The generation is taking on more student loans and delaying marriage and having children, which leads to buying homes later as well. They also got hit particularly hard after the Great Recession in terms of income and job gains.

What’s more, as the largest demographic group, millennials – defined by Zillow as adults 23 to 34 – have numbers on their side. There are 87 million millennials compared with 76 million baby boomers, the next-largest generation, according to a recent CNN analysis of census data.

“Even with a reduced level of homeownership rates, their large numbers mean they’ll be contributing [and] it takes a smaller percentage of homeownership by them to still account for the dominant or the plurality of housing demand,” Humphries says.

According to the Census Bureau, the homeownership rate of Americans 35 years old and younger was 36 percent in the third quarter of this year, compared with a national rate of 64.4 percent. About 42 percent of millennials say they want to buy a home in the next year to five years, compared with 31 percent of Gen Xers, which Zillow defines as adults 35 to 50 years old.

[ALSO: ‘Nuanced View’ Needed to Understand Millennial Homebuying Behavior]

The best housing markets next year for first-time homebuyers, according to Zillow, will be ones with strong income growth among 23- to 34-year-olds, significant growth in entry-level homes on the market and affordable home prices. Those include Pittsburgh, Chicago, Las Vegas, Atlanta and Hartford, Connecticut.

Home values will grow in 2015 by 2.5 percent, down from 2014 appreciation of 6 percent, Zillow anticipates, while rents will grow around 3.5 percent. “As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market,” Humphries wrote in a press release.

Zillow also expects construction to shift toward less expensive homes rather than big, expensive ones – which is important for many budget-conscious first-time buyers.

“New home sales volume has been stuck around the 450,000 per year mark. In order to break out and get that number above 500,000, builders are going to have to start to build cheaper homes, which will help to narrow the price gap between new and existing homes and contribute to more rapid inventory gains,” Humphries wrote.

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