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Millennials’ Share of the U.S. Housing Market: Small and Shrinking

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Because homeownership is the chief builder of wealth, the trend is ‘bad news for the economy overall’

From the WASHINGTON POST:  Today’s young adults are starting their lives on drastically different financial footing than their parents did decades ago. Necessities cost far more and wages have flattened; as a result, many young families have to dig through mountains of debt before they can even think about growing their wealth.

data point from the Federal Reserve, highlighted recently in a special report on housing by the Economist, underscores the differences between millennials’ financial trajectory and those of earlier generations: In 1990, baby boomers, whose median age was 35, owned nearly one-third of American real estate by value.

In 2019, the millennial generation, with a median age of 31, owned just 4 percent.

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Millennials, many of whom are entering their prime home-buying years, are likely to make up some of that gap by the time they see 35. But they’re not likely to reach 30 percent of the housing market — or even the 20 percent attained by the smaller Generation X at the same point in their lives.

Because homeownership is the chief builder of wealth for middle class families, if this trend continues “we’re looking at a generation that will have lower lifetime wealth,” said Jenny Schuetz, a housing policy expert at the Brookings Institution. “That’s bad news for the economy overall, not just millennials,” she added.

The challenge facing would-be millennial home buyers is two-pronged. In many of America’s most desirable cities, the median price of a home is well beyond the reach of a typical salary. For the past several decades, developers in major metro areas like New York City have built a glut of luxury condos while ignoring the needs of the middle class. Strict land use and zoning regulations, as well as opposition to new development by many existing homeowners, have exacerbated the problem.

Millennials’ massive debt burdens also make it difficult to them to save for a down payment at any housing price. For households headed by someone younger than 35, median debt ballooned from $21,000 in 1989 to $39,000 in 2016. During that same time period, the percentage of under-35 households with student loan debt more than doubled, from 17 percent to 45 percent, and their median debt more than tripled, from $5,600 to $18,500.

These factors are propelling us toward an inflection point. As baby boomers slowly age out of homeownership, a projected $13.5 trillion in housing inventory will come on the market in the coming years. But millennials and younger generations might not be able to afford them.

“At some point, boomers will want/need to sell their houses, and it’s not clear that millennials will be able to pay what boomers think their homes are worth,” Schuetz said.

On the other hand, some of those boomers will leave their estates to their children. “Millennials whose parents are sitting on lots of housing wealth will have an easier time paying for college or coming up with a down payment — even if they don’t inherit for a while, they have a family safety net,” Schuetz said. So it’s likely that millennials will rapidly bridge some of the housing gap visible in the chart above.

One mystery remains however: As things stand, the share of housing wealth accumulated by American millennials is falling — in 2016 it reached a high of 7.5 percent and has been declining steadily since. Conversely, boomers and members of the silent generation have seen their collective share of the American housing market rise about 5 percentage points since 2016.

Schuetz says the reason for that drop isn’t immediately clear. It could be, for instance, that real estate currently owned by older generations is appreciating more rapidly in value than that owned by millennials.

Regardless, the downward trend suggests that the current pressures facing would-be millennial home buyers aren’t easing anytime soon.

WRITTEN BY CHRISTOPHER INGRAHAM FOR THE WASHINGTON POST

 

New playground being installed on Larchmont

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FROM LARCHMONT CHRONICLE:  Work is expected to be underway this month for the long-anticipated playground pilot project being installed on a small portion of the surface parking lot on Larchmont Boulevard. Initially conceived by neighborhood associations and supported by Councilmember David Ryu and the staff and board of the city’s Dept. of Recreation and Parks (RAP), the 1,200-square-foot playground for young children accompanied by parents or guardians is expected to take about four weeks to install. An opening is expected as early as next month.

PPP-for-Jan-web-400x267Nearly two years ago, letters supporting the idea came to the city from merchants  (the Larchmont Boulevard Association — LBA), from residents south of Beverly Blvd. (the Windsor Square Association — WSA) and north of Beverly Blvd. (the Larchmont Village Neighborhood Association), from the Hancock Park Homeowners Association, from the HOPE-NET producers of the Taste of Larchmont and from the LBA producers of the Larchmont Family Fair. The LBA’s liaison with the Sunday Farmers’ Market learned that the market organizers “will not object” to the potential loss of the parking spaces to be converted into the small playground.

Based upon this almost universally positive response, landscape architects in the city’s RAP got to work on a detailed design process. The resulting playground, which replaces one out of four rows of parking spaces on the lot at 209 N. Larchmont Blvd., next to Bella Cures, will have landscaping as well as areas for child play and seating for supervising adults.

The playground design, as it has evolved under the leadership of RAP’s lead landscape architect, features multiple colorful spaces for child play.

There is a jumping game near the entrance from the Larchmont sidewalk. Further inside are log balance beams, “sprout”-themed structures for climbing, and low, brightly colored “mounds” for the littlest children. Three new trees, two palo verdes and one jacaranda, will be planted, along with new shrubs.

     

Opening hours will be similar to other city playgrounds, from after dawn to dusk. The playground is lighted, and it will be secured overnight by locking its entrance. Also, the LBA and its security contractor, SSA, will take an active interest in the well being of the playground and its occupants, including the playground’s opening and closing every day.

WRITTEN BY JOHN WELLBORNE FOR THE LARCHMONT CHRONICLE
Direct Link: https://larchmontchronicle.com/new-playground-being-installed-on-larchmont/


 

 

L.A. is the Hottest Housing Market in California

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Los Angeles’ median price was $550,000, up 7.4% from a year earlier

FROM HOUSINGWIRE.COM: Los Angeles beat San Francisco in November as the hottest real estate market in the nation’s most populous state, according to a report by the California Association of Realtors.

The median price of a single-family home in the L.A. metro area was $550,000, up 7.4% from a year earlier, and sales gained 3.4%. The median price in the San Francisco Bay area was $925,000, up 2.2%, and sales fell 4.8%, according to the report issued on Wednesday.

Looking at the whole state, the median price was $589,770, up 6.4% from a year earlier, the biggest annual gain since July 2018, and sales increased 5.6%, the report said.

coregroupsign111 (2)Low mortgage rates are supporting housing demand, even as buyers strain to afford the state’s pricey markets, according to CAR Chief Economist Leslie Appleton-Young. The average U.S. rate for a 30-year fixed mortgage was 3.7% in November, more than a percentage point lower than a year ago, according to Freddie Mac data.

“We’re seeing a more robust market in the second half of the year, driven primarily by the lowest interest rates in nearly three years,” said Appleton-Young. “While uncertainties and supply constraints will continue to dictate the market outlook in 2020, the California housing market will likely wrap up 2019 in slightly better shape than previously thought.”

Central Valley, an inland swath that runs about 450 miles north from Bakersfield, had the state’s cheapest median price during November: $340,000, up 6.3% from a year earlier. Sales in that region rose 0.6%, the CAR report said.

The Inland Empire, east of Los Angeles, had a median price of $379,000, up 4.2% from a year ago, and sales were up 0.7%, the report said.

WRITTEN BY KATHLEEN HOWLEY FOR HOUSINGWIRE.COM

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10 Housing and Mortgage Trends for 2020

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FROM NERDWALLET.COM: Mortgage rates will remain low in 2020, affordable homes for sale will remain scarce, and boomers will remain in their homes and build equity that they won’t borrow from. But not everything in 2020 will be a continuation of 2019: People shopping for FHA loans might find more lenders competing for their business, and change is coming in the timeworn ways that homes are bought and sold.

In most places, it will still be a seller’s market in 2020, and first-time home buyers will especially be at a disadvantage because there aren’t enough starter homes to go around.

NerdWallet has identified the following 10 housing and mortgage trends to watch for in 2020.

1. Mortgage rates will stay low

Mortgage rates are expected to remain around the same low levels through 2020 as they spent the last half of 2019, when they averaged about 4% APR, according to NerdWallet’s daily survey of national mortgage lenders.

Fannie Mae, Freddie Mac, the Mortgage Bankers Association and the National Association of Realtors all predict that mortgage rates will end 2020 within a quarter of a percentage point higher or lower of where they end 2019. 

Forecasters expect inflation to remain mild, trade tensions to ease and the Federal Reserve to cut short-term rates once or twice. In short, they expect the economy to sail through relatively smooth waters in 2020, despite it being an election year, and that’s why they don’t expect much movement in mortgage rates.

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2. It will be hard to find homes to buy

Home buyers face a shortage of homes for sale, and the low inventory is expected to continue through 2020 and beyond.

“Inventory could reach a historic low as a steady flow of demand, especially for entry-level homes, and declining seller sentiment combine to keep a lid on sale transactions,” according to Realtor.com’s 2020 forecast.

Not enough homes are being built to house young adults who grow up and want to move out on their own. A little over 2 million households were expected to form in 2018, according to the Census Bureau. Yet builders began construction on just 1.25 million housing units that year, and a lot of them aren’t priced to be the starter homes that first-time buyers want.

3. Lack of affordability will hold back home sales

The problem isn’t only a shortage of homes for sale — it’s also a lack of affordable homes for sale. Potential buyers outnumber sellers of homes costing $150,000 to $400,000, says Mark Boud, of Metrostudy. The opposite is true for homes costing $500,000 or more. For homes in the $400,000s, supply roughly equals demand.

The home affordability crunch has sidelined first-time home buyers. First-timers accounted for 33% of home buyers in 2018 and 2019, well below the historical average of 39% since 1981, according to the National Association of Realtors. Laurence Yun, NAR’s chief economist, expects an increase in home sales in 2020, but not because of a big supply of low-priced homes. Rather, sales will increase because of low mortgage rates and rising incomes, he says.

4. Believers in climate change pay less

As the climate heats up, are ocean levels rising? Scientists say they are and that rising seas endanger coastal real estate with storm surges and “nuisance flooding” of streets, sidewalks and buildings.

Not everyone believes ocean levels are rising. There’s evidence that nonbelievers are willing to pay more for beach houses. A paper titled “Does Climate Change Affect Real Estate Prices? Only If You Believe In It,” by researchers at the University of British Columbia and University of Chicago, says that, all other things being equal, prices for vulnerable U.S. homes are 7% higher in “climate denier neighborhoods” than in “believer neighborhoods.”

The researchers add that “our analysis is agnostic about whether it is believers who overreact or deniers who underreact to long-run risks of climate change.” Either way, the research might be reassuring news to sellers in denier neighborhoods and buyers in believer neighborhoods.

5. Sellers could see multiple offers again

You’d think that a shortage of homes for sale would bring on the bidding wars, right? But buyers stopped playing that game in fall 2019 — the season when sales typically cool off.

“Nationally, just 10 percent of offers written by Redfin agents on behalf of their homebuying customers faced a bidding war in October, down from 39 percent a year earlier and now at a 10-year low,” the national real estate brokerage says.

But Redfin’s chief economist, Daryl Fairweather, expects bidding wars to break out more often in 2020: Inventory is low, and so are mortgage rates, which boosts affordability and brings out more buyers. “All of the pieces are in place for bidding wars to become more common and for the housing market to shift back toward the seller’s favor next year,” she says.

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6. Borrowers might find a broader selection of FHA lenders

Big banks cut back on underwriting FHA loans over the past few years because of a perception that the federal government punished banks severely when they made errors. Nonbank lenders stepped in to fill the FHA loan gap. But to encourage big banks to resume FHA lending and provide competition, the departments of Justice and Housing and Urban Development have announced that they will “ensure that the severity of certain violations is matched with the appropriate remedy.”

If big banks jump back into FHA lending with both feet, as the feds intend, then borrowers could end up benefiting from lower costs and better service brought on by more competition.

7. Homeowners will stay, not sell

Americans aren’t as restless as they used to be. Typical homeowners have had their homes for 13 years, according to Redfin. In 2010, typical owners had been in their homes for eight years.

The National Association of Realtors has noted the trend, too. “People used to move every six to seven years because of a change in life” such as having children and needing a bigger home, or getting a new job, says Jessica Lautz, vice president of demographics and behavioral insights for NAR.

But fewer people are citing those urgent reasons to move. In 2019, the most commonly cited reason for selling a home was to move closer to friends and family, a NAR survey found. It’s easy to conclude that if that’s the top reason for moving, people may not be in as big of a hurry to make it happen.

Boomers, especially, are staying put, so millennials will buy their first homes from Gen Xers who move up, according to Realtor.com’s forecast.

Citrus 401 Main1 (2)8. Homeowners sit on their equity

American homeowners had $19.7 trillion in equity in the middle of 2019, the highest figure ever, according to research from the Urban Institute’s Housing Finance Policy Center. In fact, Americans doubled their home equity from 2011 to 2019. They accomplished it the old-fashioned ways: By paying their mortgages over time, and by not cashing in their equity.

Home equity lines of credit, a once-popular way to borrow from equity, have been fading since 2008, as people have repaid their balances faster than they’ve borrowed.

Another way of extracting equity, the cash-out refinance, remains popular. More than half of refinances in 2019 were cash-out refis. Cash-out refinancers extracted about $20 billion in equity in 2019, compared to more than $80 billion at its peak in 2006, according to the Urban Institute, which takes this as a sign that lenders and borrowers are taking fewer risks than they did before the housing crisis.

9. iBuyers make their move

An iBuyer is a company that lets you request an automated offer on your house. If the iBuyer makes an offer and you accept it, the company buys the house, fixes it up and sells it — on your schedule. You don’t have to clean up and clear out for buyer showings. You pick a closing date that matches up with the purchase of your next home.

The best-known iBuyers are Opendoor (the pioneer), Zillow Offers, Offerpad and RedfinNow. The companies operate in a limited number of markets, but they are expanding into new places, and they are expected to keep growing.

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10. Wars over the MLS system could change home-selling

The real estate industry faces challenges that could upend the way homes are marketed.

One threat comes in an antitrust investigation by the Justice Department, which wants to know whether local Multiple Listing Services allow buyer’s agents to filter listings by commissions. If so, agents would be able to hide listings from you if, in your agent’s opinion, they offer commissions that are too low.

Another threat comes via class-action antitrust lawsuits that accuse large brokerages and the National Association of Realtors of forcing sellers to pay inflated commissions to buyers agents.

An upstart real estate brokerage called REX is fighting the industry on another front. REX doesn’t list homes on the MLS. Instead, it markets homes so they’re easily found on Google, Facebook, Zillow and Trulia, says Jonathan Friedland, a senior vice president for REX. Home sellers represented by REX don’t pay commissions to buyer’s agents.

REX avoids listing homes on the MLS altogether. Meanwhile, there has been a trend in which local brokerages have listed homes on their websites but have withheld them from the MLS. In November 2019, NAR adopted a rule requiring homes to be listed on the local MLS within a day of being marketed elsewhere. These moves and countermoves are likely to continue into 2020 and future years.

WRITTEN BY HOLDEN LEWIS FOR NERDWALLET,COM

Opinion: Planning to sell your house to fund your retirement? You need to know this

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Seniors looking to unload real estate face headwinds (By Paul Brandus for Marketwatch.com)

 It’s been written about the grim financial prospects that millions of older Americans face. Meager personal savings, debt, looming health care costs and more are pushing many to the brink.  At least you could always cash out of your house and move somewhere cheaper, right? Perhaps, but as a new study from Zillow, the real estate website warns, perhaps not.

The problems are threefold: Demographics, geography and finances.  Looking at the first problem, there are a lot more baby boomers (defined as those born between 1946 and 1964) than those in the next generation, the so-called Generation X crowd (generally defined as those born between 1965 and 1985). At their peak, boomers totaled around 76 million, but Gen Xers around 50 million—only two-thirds as many.

12th AvenueZillow says 34% of all owner-occupied homes in the U.S. are owned by people aged 60 or older. Millions of these homes will hit the market over the next two decades as senior boomers either die, move in with their children or to an assisted living facilities. The problem: There are too many homes to be absorbed by Gen Xers. This suggests that prices will have to fall.

Geography matters, too, and will impact some areas more—perhaps much more—than others.  

It’s no surprise that homes in Rust Belt cities will be under pressure as people, for one reason or another, try to sell. But Zillow also projects that cities which have been traditional destinations for seniors will face challenges too. At the very top of its list, are three markets in Florida: Tampa, Miami and Orlando, along with Tucson, Ariz.

“If the number of future retirees choosing to make these places home during their golden years fails to match generations past and local housing demand fades, these areas may end up with excess housing,” Zillow’s report says.

Again: that means prices will have to fall.

Don’t Gen Xers—and millennials after that—want to live in these places? Zillow’s study says no, pointing out that “thus far they would rather be in cities or suburbs in major metropolitan areas that offer strong Wi-Fi and plenty of shops and restaurants within walking distance—like the Frisco suburbs of Dallas or the Capitol Hill neighborhood of Seattle.”

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Photo by Esther Ann on Unsplash


There may be another issue as well. Anecdotally, just talking with friends who are nearing retirement age (I’m not too far away myself) suggests growing concern about coastal areas like Miami because of rising sea levels and the possibility of more frequent and intense hurricanes. That’s not the problem in desert destinations like Tucson, but heat is. Average temperatures are rising; it gets hotter earlier in the year, stays hotter later in the year and is scorching in between. They say it’s a dry heat. Who cares? My oven is a dry heat.

Climate change wasn’t a problem 20 years ago, but as it seeps into the conscience of younger buyers—and younger Americans are more concerned than their elders about this—it seems likely to have some sort of impact on where they choose to live.

Thus, sellers in the Rust Belt will have trouble finding buyers, and sellers in the Sunbelt may as well. Again, in both instances, prices will have to fall to attract buyers.

Then there is the undeniable problem of finances. While some baby boomers have the luxury of having some sort of pension, along with retirement savings, Gen Xers are highly unlikely to have the former and have done little about the latter. Current obligations, like caring for children or aging parents, student debt, along with the often high cost of housing in many urban areas, makes saving for a down payment on a home difficult. And boomers think they’ll be lining up to buy homes in Dayton or Miami?

These three factors—demography, geography and finances—all suggest that baby boomers, at least in certain markets, may face headwinds when the time comes to sell. Any boomer counting on the sale of a home to plug a hole in their finances may need to ratchet down their expectations.

WRITTEN BY PAUL BRANDUS FOR WWW.MARKETWATCH.COM


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