May 13th, 2019 12:39 PM by Richard Sardella MLO.100007700/NMLS 233568
Trailing edge millennials face growing obstacles to home ownership
There is always a lot of talk about millennials, their lifestyles, and their penchant to become homeowners. Real estate gurus try to predict what they will do next, while the final wave of them is now making the news. Publications like Forbes Real Estate is making its predictions, with writer Brenda Richardson saying that it’s about to get even harder for trailing-edge millennials to buy their first homes.
“Nearly 45 million Americans will reach the typical age for first-time home buyers within the next 10 years, 3.1 million more than the past decade, creating stumbling blocks in an already challenging market for those racing for a spot in the starter home market,” she says. She continues by saying that the median first-time home buyer in the U.S. is 34 years old with 44.9 million Americans aged 24 to 33, compared with 41.8 million people ages 35 to 44.
Richardson’s research relies on studies by Zillow, which now say that starter homes have gained 57.3% in value over the past five years, a median increase of $47,600, while for-sale inventory in this price range has dropped 23.2%. Over the same period, the most expensive third of starter homes gained 26% in value, and homes in the middle third appreciated 36.8%.
Non-institutional lender Mr. Cooper (a leading mortgage lender) says reasons millennials might want to own a home include security, independence, building equity, stability, and financial flexibility. But saving for a down payment is an issue. It is documented that today’s first-time buyers need 18 months longer than they did 30 years ago to secure a loan and that nearly four times as many first-time buyers who obtained a mortgage last year were denied at least once (29%) compared to repeat buyers (8%).
“The Mr. Cooper report found that 58% of aspiring homeowners lack the funds for a down payment,” says Richardson. “Nearly half (43%) don’t have a financial plan in place to purchase a home someday; 75% would be willing to work a side job if it meant owning a home sooner, and 36% would have a roommate if it meant being able to afford a home sooner.”
If you’re looking to buy your first home and feel you can establish yourself just about anywhere for employment, the 3 best markets in the 2019 home shopping season are Tampa, Las Vegas and Phoenix, according to the article, citing relatively affordable markets with median home values well under $300,000. Price cuts in those markets are helping, offering first-time buyers a tad more bargaining power.
On opposite coasts, San Diego and Boston are expected to see the largest jumps in potential first-time buyers with both metros slated to see a nearly 20% increase in the next wave of potential first-time home buyers compared with the previous wave.
Richardson explains how buyers making the transition from renting to homeownership help ease rental demand, which holds down rent-price growth. But if those trailing-edge millennials can’t purchase homes, it could drive up rent prices as well as home values.
Source: Forbes, Zillow, TBWS
How Rates Move:
Conventional overnment (FHA and VA) lenders set their rates based on the pricing of Mortgage Backed Securities (MBS) which are traded in real time, all day in the bond market. This means rates or loan fees (mortgage pricing) moves throughout the day, being affected by a variety of economic or political events. When MBS pricing goes up, mortgage rates or pricing generally goes down. When they fall, mortgage pricing goes up. Tracking these securities real-time is critical. For more information about the rate market, contact me directly. I’m among few mortgage professionals who have access to live trading screens during market hours.
Rates Currently Trending: Lower
Mortgage rates are trending slightly lower so far today. Last week the MBS market worsened by -7bps. This caused rates to move sideways for the week. We saw low rate volatility for the week.
Three Things: These are the three areas that have the greatest ability to impact rates this week. 1) Trade War, 2) Across the Pond and 3) Domestic.
1) Trade War: On Friday, the U.S. increased the tariff rate from 10% to 25% on $200B of Chinese goods and announced plans to include another round of tariffs on Chinese goods that have not yet had a tariff. China has now issued their response which is to tariff $60B of U.S. Goods which breaks down to 2,493 specific items, but some of these tariffs are not new. 595 items were already tariffed at the rate of 5% and will remain at that rate. 974 new items will receive a 10% tariff, and 1,078 items will move up to a new tariff rate of 20%. Also, while not an official announcement, China has allowed its media to "speculate" that other future auction could include dumping some U.S. Treasuries.
2) Across the Pond: We have some really big economic releases this week that could change perception on global growth and inflation which is a huge factor in demand for long bonds.
3) Domestic Flavor: The biggest report of the week is the Retail Sales report on Wednesday. It's really the only domestic release that can impact rates. But this report has seen some wild swings lately and has been viewed with a lot of skepticism by economists.
This Week's Potential Volatility: Average
Last week we saw rates and volatility remain flat. While we're headed a bit lower so far today on elevated volatility, we don't expect rates to move significantly lower for the week. However, if the trade war dramatically escalates we could see rates move lower.
If you are looking for the risks and benefits of locking your interest rate in today or floating your loan rate, contact your mortgage professional to discuss it with them.
Richard Sardella has been actively managing and providing services in the mortgage industry for over 27 years. Richard serves on the board of directors as President of Colorado Home Mortgages Inc.
All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.
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