According to a recent Gallup poll, only 10% of respondents believe that prices will fall. The remaining 90% are split between rising and staying the same, at 64% and 26% respectively. In 2009, during the recession, only 22% of respondents believed home prices would be going up soon. Because of rising house prices, about the same number, 65%, also think it’s a good time to buy a house sooner rather than later and accrue value. Of course, buying a house is nearly always a good long-term investment if it can be achieved; the percent hasn’t fallen below 50% in the past 40 years. The question is more a matter of feasibility. Certainly, rising prices seem optimistic to those who have the extra money to invest now. A less optimistic viewpoint is that even those who can’t afford to buy now still recognize it would be a good time to buy if they were able to, and probably won’t be able to any time in the near future.
You’ve meticulously maintained your home. The floors are spotless. Someone has really cared for this home, so any buyer can just move straight in, right?
Not necessarily. If your home is in an older style and hasn’t been updated, people will notice. Even if you clean regularly, that doesn’t mean you’ve done all the necessary repairs or replaced outdated fixtures. In order to sell your home, you really need to sell your home. Make people want to buy it. Compare your home to other, similar homes currently for sale. If those are new or remodelled, and yours isn’t, you may not be able to get the same price they will. Then the decision becomes, do you want to make renovations, or potentially end up getting less than you wanted?
If you’re an “empty nester” whose children are all grown and have moved out of the house you’re still living in, it may be time to downsize. Chances are, your current home is bigger than you need it to be, perhaps too big. Unless you’re renting out rooms, perhaps you never see half your home, or perhaps you’re cleaning rooms regularly that you don’t spend any time in. If you’re a retiree, you may want to stretch your reduced income by moving somewhere with a smaller mortgage payment or less upkeep, or maybe you’d be just as comfortable in a lower cost-of-living neighborhood. If you’ve built up equity, you could use that extra cash to put an even bigger dent in your mortgage payments, or eliminate them entirely, especially with recent changes to capital gains tax law allowing you to exclude up to $500,000 even when downsizing. Another possible benefit is fewer or no stairs. Or maybe you just want to move to a more preferable location.
That doesn’t necessarily mean it’s a decision you should jump on immediately. For many, change can be hard, especially if you are moving far away from friends, family, and neighbors. Many people have trouble knowing what to leave and what to take, since a smaller home will probably have less storage space. In addition, all the normal stress and costs of moving still apply.
Rental costs are on the rise everywhere in the US, at an average of 1.4% year-over-year. Most of this is caused by coastal cities. One state in particular boasts three of the top 5 most expensive cities to rent: California. San Francisco is #1, San Jose #3, and Los Angeles at #4 (tied with Boston, MA). Typical rental prices per month for a one-bedroom apartment in these cities are $3440, $2500, and $2300 respectively.
Rental prices in these individual cities aren’t necessarily growing fast, though. Some of them already had high rent prices. New York, despite being #2 in the list, actually had a negative growth rate — minus 0.30 month-over month and minus 0.70 year-over-year. The cities with the highest growth rates are Houston and Las Vegas at 15.6% year-over-year, but are #27 and #60 on the list respectively.
The top 10 list is below:
1. San Francisco
2. New York
3. San Jose
4. Los Angeles
6. Washington D.C.
9. San Diego
The full top 100 list is available at https://www.zumper.com/blog/rental-price-data.
While millennial homeownership has been understandably low since 2008, with a record low in 2016, it had actually been climbing in 2017. It was at a three-year high of 36% in quarter 4 of 2017. Now it has dropped again. The figure for quarter 1 of this year was 35.3%. Homeownership rate in general did not drop; in fact, it was steady at 64.2 for two quarters. This is up from the 50-year low of 62.9% in 2016 and the steadily rising 63.6% in 2017. This is because homebuyers between the ages of 35 and 64 are still buying more, even as millennials buy less.
Lack of affordable housing is the clear cause, as millennials today searching for starter homes aren’t able to find much in the way of inventory. At the end of the first quarter this year, starter home sales were down 21% at the same time that high-priced sales increased. Development has been focused on the luxury market, and rising interest rates and prices mean many are still renting because they can’t afford to buy.
Recent data shows changing trends in homebuyer demographics. A report from Veritas Urbis Economics compares 2017 data to the previous generation of buyers, those in 1981. The percent of women buying homes shot up from 18.9% in 1981 to 46.4% in 2017. Specifically, the number for single women is over double, from 9.1% to 18.9%, an all-time high. Older generations and single-owners are also a larger share, with 55+ buyers increasing from 16.1% to 27.8% and single-owners from 15.3% to 21.2%. By contrast, the categories that have dropped are homebuyers under 35 and homebuyers with children. The former decreased from an all-time high of 52 to an all-time low of 33.7%. The latter was also at an all-time low of 40.7% in 2017, down from 51.4% in 1981.
The Urban Land Institute has proposed five ways the State can help ensure that the local housing market suits the needs of its residents. They are as follows: 1. Quantify housing needs and create targets. 2. Provide financial and other incentives to assist municipalities. 3. Streamline and reduce regulatory barriers. 4. Authorize municipalities to invest their own resources. 5. Empower municipalities to override NIMBYism.
To the point of numbers 1. and 2., many communities have no local efforts to analyze housing needs or knowledge of how to properly use their authority. Therefore, it would be helpful for states to establish some guidelines. California has a long-standing example of such a standard. There is a process called regional housing needs allocation (RHNA) which establishes each community’s housing needs, then asks those communities to update their plans to conform to their goal. The RHNA is not without its pitfalls, though, as the goal is rarely enforced. With the only possible sanction being withholding funds or suspending permitting, which are both required to ever meet the goal, many communities haven’t met it, and some haven’t even tried. Virginia has recently started using a similar process, new enough that not much is known about its relative success. The Incentive Housing Zones (IHZ) program in Connecticut and the Smart Growth Zoning Overlay, or Chapter 40R, in Massachusetts provide financial assistance to communities that meet specific goals. The IHZ is voluntary, but in addition to the financial incentive, also offers technical assistance, which have led over 40% of Connecticut communities to start or continue the process.
Minnesota and again California have made efforts to streamline processes. The Minnesota Challenge began as an idea contest and has developed into an ongoing process which identifies key areas where development costs can safely be reduced and regulations eliminated or streamlined. In addition, it resulted in the establishment of standardized loan documents. Multiple laws in California have addressed red tape in parking construction, as well as repurposing of garages or backyard structures into accessory dwelling units (ADUs), long in existence but previously heavily regulated.
Empowering municipalities is an approach taken by a few states, including Washington, Utah, and Texas, while Massachusetts has limited municipal power in some cases. Washington has allowed for temporary tax exemptions for multifamily residences in certain areas. In Utah, local redevelopment agencies are authorized to leverage tax revenues generated by developments to finance future development projects, with a percentage going toward affordable housing. Texas authorized local communities to provide financial incentives for developing affordable housing in areas with high poverty rates. Though their method does not necessarily empower municipalities, Massachusetts has been the most successful state in combatting neighborhood opposition to redevelopment. Their Chapter 40B law limits the authority during the review process of localities that do not have at least 10% affordable housing, as well as providing a streamlined approach to those with at least 20% affordable housing. Despite criticism and some abuse cases, the law enabled some affordable housing developments that under normal zoning laws could not have occurred.
San Francisco data gives a glimpse into just how difficult it can be to own a home in California today. On a median salary of $72,340 — about $18,000 more than in other states — teachers in San Francisco are still not even able to afford 1% of the homes on the market. Some school districts are being forced to develop affordable housing for teachers to prevent loss of staff. A year of mortgage payments would cost nearly $94,800 on an average-priced home at $1.61 million.
Compare this to the year 1959, when teachers were making about $5200 per year and homes cost only $12,788 on average. Interest rates were actually higher, but payments were much easier, costing only $708 per year. Annual costs to own the average home were about 13.6% of median annual salary, compared to a whopping 131% today, nearly ten times the 1959 figure.
Why was it so much easier in the 1950s? Because it hadn’t been easy during World War II, and once the war ended, there were efforts made to fix that. There weren’t enough homes, and there wasn’t any money going into building them because of war spending. Post-war, the introduction of GI bill allowed many veterans — which were a large proportion of the population — to gain easy access to home loans, and FHA regulations also increased the number and types of loans available. With more people able to acquire loans to purchase homes, developers began building more, particularly in suburban areas.
Not everyone benefitted equally from these programs, though. FHA and VA programs both excluded African Americans and other people of color via a process known as redlining. Communities were rated on a four point scale, with red being the worst. Points were deducted from older areas and areas where people of color were living, which frequently were the same thing. This merely accelerated existing prejudices and resulted in a self-fulfilling prophecy, as already disadvantaged groups never got access to homeownership and continued to be forced to rent rather than acquire value on their home.
The Pew Research Center analyzed 2016 Census data to discover that the number of US households spanning multiple generations of residents over the age of 25 had reached 20%. This amounts to 64 million, an all-time high for the US. For comparison, the numbers were 19% at 60.6 million in 2014 and 17% at 50.5 million in 2009.
Some demographics can account for a large percentage of this trend, such as Asians and Hispanics — traditionally more likely to live in multigenerational households — at 29%, as well as millennials at 33%, some of whom are still recovering from the economic situation in 2008. Nonetheless, it’s a trend that is growing among all races and most age groups, and is largely independent of sex.
Interest rates are currently on the rise, and it’s difficult to get a loan below 4% interest. With some existing loans as low as 3%, more buyers may be interested in assuming a loan. Loan assumption refers to a buyer taking over some terms of an existing loan, including the rate, repayment period, and current principal balance, rather than getting a new loan. This has the primary benefit to the buyer of obtaining a lower rate on one’s mortgage.
There are some important things to know first. Not all loans are assumable. Typically, FHA loans, USDA loans, and VA loans are assumable, while conventional loans are not. These rules aren’t set in stone, so if you are interested in assuming a loan, make sure it’s assumable first. That doesn’t mean it’s a done deal, though — after making sure it’s possible, the assumptor would still need to apply for the loan and meet the lender’s requirements, and the down payment depends on the seller’s equity.
If you’re the seller, the primary benefit to having your loan assumed is that it may make your home more attractive to buyers, meaning a faster and potentially higher-priced sale. There is one drawback, though. If the lender doesn’t release you from liability as the original borrower, the assumptor not making payments or defaulting on the loan could affect your credit score.