October 22nd, 2018 2:52 PM by Richard Sardella MLO.100007700/NMLS 233568
The changing face of buyer demographics
Life in these United States has changed. According to BUILDER Magazine’s John McManus, 2018 brings with it a demographic tipping point: fewer than half of U.S. households are now headed by married couples. He encourages builders across the country to re-think who they are building homes for. “How well-matched are today's and tomorrow's new homes and communities to actual households?” he asks.
McManus goes on to say this may not necessarily sound like a wake-up call to many builders in regions that continue to see plenty of demand from married-couple households — the prototypical snapshot image of the engine of the American economy. But for others in other markets and submarkets, the challenge is worthy of serious note. “If new homes--the way they're designed, the way they're marketed, the way they're planned in a neighborhood, the way they're priced, and the way they connect to work, dining, education, and healthcare--were more intentionally aligned with today's and tomorrow's households, would business be better?” he asks. “Would it be more sustainable? Even ownership and financing structures may need to evolve if new home development and investment is to keep pace with America's changing demographic patterns in household composition.”
BUILDER cites a recent meeting of Boston’s Urban Land Institute, where the ubiquitous issue of housing affordability challenges was discussed — an exploration of new mortgage financing that can allow two separate single-person households to buy an upstairs-downstairs combination of stacked quad units as a single transaction. This begs “more floor plan design variety, new housing typologies, novel financing, and ownership instruments, and a whole new language of marketing to less traditional households are baseline imperatives today in many of America's more urban regions, and that's spreading,” according to McManus.
Married-couple households that have functionally worked the same way for 10 decades or more can have homebuilders in a netherworld, thinking that everyone, married or not, lives in a home essentially the same way. But data is now telling us something different, and McManus says it’s time for builders to ask questions such as “Does a ‘solo’ householder perceive volume, flow, privacy, order the same way as a married couple does? Do ‘co-livers’ walk the same path through their homes as married-with-children people do? Do the financial means of a single-person household alter what he or she needs, and what they can easily live without?”
McManus says issues like the algorithms of liveability, daily routines, the way time passes — all the raw materials that make up one's answer to the question "how do you want to live in your home?" — can amount to a dramatically new calculus of value, preference, and need. Life's "capital stack of essentials--live, work, play, eat, sleep, love, and pray--may stack up profoundly differently than for those married-couple households architects have been designing for, builders building for, investors investing in, developers developing for, and manufacturers creating home systems to serve,” he says.
He ends the article expressing how difficult it is to grasp just how radically living arrangements have changed in the United States unless you mine the Census Bureau's archives to uncover the nitty-gritty of the way we used to live. Homebuilders are often the last to pounce on demographic change as well as marketing technologies, hoping against hope that everything will stay the same. They are more than happy keeping their well-oiled machines churning out the kinds of single-family homes they always have. But the tide is shifting, and it seems the importance of that piece of paper making partnerships legal, or even viewing coupling-up as a life requirement are no longer the ticket, forcing builders to re-think product and lenders to find financing alternatives that work for all who participate in the American Dream.
How Rates Move:
Conventional and Government (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: Neutral
Mortgage rates are trending sideways this morning. Last week the MBS market worsened by -25bps. This was enough to move rates slightly higher last week. There was a modest rate volatility last week.
This Week's Rate Forecast: Neutral
Three Things: These are the three areas that have the greatest ability to move mortgage rates this week. 1) Central Bank, 2) GDP and 3) Geopolitical
1) Central Bank: The Bank of Canada is expected to raise their key interest rate from 1.5% to 1.75%, but it will be the European Central Bank that will get the most attention of bond traders. The market widely expects the ECB to leave their rates unchanged, but we're looking for more color on how they will reinvest maturing QE proceeds and confirmation of the process of ending their massive QE program in December.
2) GDP: We will get our first look at the 3rd QTR GDP data. The guestimates have a huge range of 2.9% to 3.9% by economists and traders alike with the mean around 3.2%. The higher this number is, the worse it will be for mortgage rates.
3) Geopolitical: There are a lot of balls in the air in this category. You have continued strife with Italy's and the EU over their budget, Brexit is still twisting in the wind, and the U.S. is not baking off rhetoric of yet another round of tariffs against China. You also have "Davos-in-the-desert," and the Caravan of illegals from Central America has the U.S. cutting off funding for Mexico, which could put the new NAFTA agreement in question.
Treasury Auctions this week:
This Week's Potential Volatility: Average
Mortgage rates could see some volatility this week. Markets will be paying close attention to the GDP. The estimates for the GDP are all over the map; it will be interesting to see how the numbers come in and how the rate markets react. Of course, geopolitical events could play a role in creating volatility in the markets.
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.
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