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HOUSING OUTLOOK 2015 continued
of 25- to 34-year-old boomerangers who have been living with their parents or grandparents—to propel growth.
Jeff and Emily Bain, both age 30, of Austin, Texas, recently took the leap to homeownership. Emily began house shopping online six years ago, watching as rents and home prices rose in Austin. At the beginning of 2014,
the couple decided to stop “jawing” about it, says Emily. By June, they had finished saving $30,000 for a down payment and safety net and set out to find a $200,000 home.
After visiting about a dozen homes with their agent, Kimberly Tortorice, of Keller Williams, the couple were surprised to find exactly what they wanted in a house, right down to its red front door.
They paid $185,000 for their three-bedroom, two-bath ranch-style house. They had enough for a 10% down payment and stable jobs, great credit and relatively little debt (Jeff owes $11,000 in student loans), so they easily qualified for financing. The Bains took out a 30-year fixed-rate mortgage with a rate of 3.875% and closed on the house in mid September. The couple’s mortgage payment of $1,150, which includes private mortgage insurance, is less than their previous rent of $1,200 a month.
Many young people who would normally fill the ranks of first-time home buyers were set back by the sluggish economic recovery. Incomes stalled, depriving them of the means to get a handle on outstanding debt, including student- loan debt, which has tripled in the past decade. Households with student debt have a tougher time meeting tight credit standards, especially strict down-payment and debt-to-income- ratio requirements. Plus, a rise in student-loan delinquency has pushed down many credit scores, says a report by TD Bank.
Crushing student-loan debt is a big reason that Chris and Sarah Berg of Laurel, Md., have resigned themselves to a longer timeline for buying a home. Although the couple both have good jobs, Chris, 36, carries $100,000 in student loans from graduate school
(he’s repaying them over 25 years). Sarah, 38, is rebuilding her credit score, which took a hit when Chris was still in school and they started their family— Arabella, 8, and Johann James, 4.
It doesn’t help that townhomes in Laurel, which is located halfway between Baltimore and Washington, D.C., go for about $400,000.
The Bergs needed more space for their family when their apartment lease ended last July, so they rented a three-bedroom, 2.5-bath townhome with a back porch and yard for about $1,800 a month. Their credit union tells them it will be a couple of years before they can buy as they save for a down payment, pay down debt and improve their credit scores. Home prices and interest rates may be higher by then, but the Bergs are resigned to waiting. “We’re still saving for a down payment, but a little slower,” says Sarah.
The NAR’s annual “Profile of Home Buyers and Sellers” shows that the share of home purchases by first-time buyers is at its lowest level since 1987. Since 1981, first-time buyers have
been responsible for 40% of all home purchases, on average. But their share fell to 33% in 2014. What will get more first-time buyers to the settlement table? “It’s all about consistent job growth for
a prolonged period, and we’re entering that stage,” says Lawrence Yun, chief economist of the National Association of Realtors. Continued low interest rates and the expected loosening of credit standards will
also help.
BUILDERS PICK UP THE PACE
In the past year, the supply of existing homes nationally has been mostly balanced between buyers and sellers,
at about five months’ supply (the time it would take to sell the current inventory at the current pace of sales). But supply in some cities has been superlow, strongly favoring sellers. Seattle recently had
just 1.6 months’ supply, reflecting strong demand from Chinese investors who have been priced out of Vancouver and San Francisco. It’s also a seller’s market in San Jose (in Silicon Valley), Austin, Houston and Boston. With few homes to choose from, buyers face bidding wars and take-it-or-leave-it sellers.
Many owners of existing homes have been holding out for higher prices.
But even if they list their home for sale, the impact on supply will likely be a wash because most of them want to trade up or downsize, says Yun, of the NAR. The key to more choices for buyers is new inventory, and it’s coming, albeit slowly. In 2014, construction of rental apartments and condos returned to pre-boom-and-bust levels. But construction of single-family homes made it just halfway back to the normal annual average of 1.3 million starts,
says Robert Denk, an economist with the National Association of Home Builders. The NAHB forecasts that single-family-
Many young people who would normally
fill the ranks of first-time home
buyers were set back
by the sluggish economic recovery. Incomes stalled, depriving them of the means to get a handle on outstanding debt, including student-loan debt, which has tripled in the past decade.
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