"I think we can let go of the idea that if builders build more homes, then somehow homes overall will be more affordable," wrote housing guru Logan Mohtashami in his latest missive. "We have a permanent housing inflation problem that started four decades ago and will not be easily cured by dithering with the inventory of larger homes."
At least, and this is a stretch, housing inflation is not quite as hot in the resale market where price appreciation has slowed to 5.2 percent over last year, the slowest pace in eight months. Perhaps this slight cooling can be explained by the relative resurgence in first-time homebuyers. At 33 percent, the June data revealed that first time homebuyers had the healthiest showing since mid-2012.
The question is where does the market go from here? Bank of America's Michelle Meyer and her crack team of housing analysts recently endeavored to answer that very question.
"Looking ahead, a strong labor market and rising incomes should support the renter-to-homebuyer transition," the report started off optimistically. Then the however arrived in the form of, "though tight credit conditions remain a challenge."
Wait a minute. Haven't we been reading for months about the renaissance in mortgage lending tied to a relaxation of standards? It is certainly the case that larger credit unions have been underwriting mortgages at a fair clip. And there's plenty of proposed legislation out there to ease the regulatory burden.
For now, at least according to the Mortgage Bankers Association's Credit Availability Index (MCIA), it's become increasingly difficult to qualify for a mortgage despite mortgage rates being just above their lows for this cycle. As of June, the MCIA was at its lowest level since February 2015; it's been sliding for eight months now. At the same time, the difference between jumbo (for homes priced above $417,000) and conventional mortgage rates is the widest since March 2011.
"This shows that despite falling interest rates, there is a heightened sense of risk aversion in the market," concluded BofA's team.
Where does that leave potential homebuyers?
One answer to this question is, "at home," as in the home they grew up in. A recent analysis by the Pew Research Center found that for the first time in 130 years, Americans between the ages of 18-34 are more likely to be living with their parents compared to any other living arrangement. Some 32.1 percent are bunked up with their parents while 31.6 percent live with a spouse or significant other; only 14 percent live alone.
The sunny side of the story first. The stigma of living at home has worn off. It's just economically easier to get that law degree or MBA while living at home. And then there's always mom's cooking (if she's a good cook, that is.)
The less bright reason is also culturally-driven. It's no secret that many millennials are drawn to big cities. The problem, as per a recent Zillow study, is that lower income earners would need to fork over 30 percent or more of their monthly income to make a mortgage payment in one third of major housing markets. The brighter the lights and bigger the city, the more you would spend leaving less for every other expense. So you live with your folks...if that's an option.
The truth is, in recent years, millions who can't afford to buy a home have been forced into the rental pool where inflation has also been unbridled. Typically, the rental inflation captured in the consumer price index is too kind, tracking at unrealistically low levels; for the record, it's risen by 3.8 percent over the last year.
Clearly we've crossed the Rubicon to atypical. Today, the market inflation rate captured by private firms is running belowthat of the CPI; it's at 3.5 percent over the last year as oversupply finally collides with unaffordability. That's bound to be welcome news as rent inflation has been running closer to five percent since 2014.
The culprit in the apartment arena may have a familiar ring to it. Last year, three out of every four apartments constructed were for the luxury sector, continuing a trend that's been firmly in place since 2012. Making matters worse, realistic and mutually beneficial public/private partnerships have also dried up in recent years, yet another reflection of the gridlocked economic potential trapped inside the Beltway.
It's easy enough to say that something has to give. For the moment, it appears as if that something is apartment rental rates, a welcome development. Over the longer haul, though, even the millennials have to settle down and have 2.4 kids and get a dog who enjoys a backyard in a home they own.
We can only hope Mohtashami is wrong though his reasoning is sound: "I call it the 'Tiffany Effect.' Just like most couples cannot afford an engagement ring that comes in that distinctive blue box, only the very fortunate few will be able to afford a new home."
Of course the hope is that household formation kicks up to two million a year or more from here on out as the sheer number of millennials entering their prime earning years simply forces up the ranks of first-time homebuyers.
"The massive demographic push that will come in years 2020-2024 will increase housing demand," concedes Mohtashami. "But it won't be as strong as some of my bullish friends in the housing community are betting on."
What a beginning to the century it's been for housing. It started with low interest rates fueling unfathomable home price appreciation. Sixteen years later, it's an Altered State of being with low interest rates driving rampant rental inflation, even as median incomes remain 1.5-percent below their 2000 levels.
On whose watch was this fright show produced? Who wrote the script being played out in all its gory detail across all 50 states of the residential real estate map?
Meddling in markets never ends well. Though much hope is pinned on housing being the exception to this rule, the odds are stacked against a miracle outcome. They say power corrupts absolutely. After nearly 30 years, one can only hope the lesson has also been learned that lower for longer also distorts indefinitely.
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At least, and this is a stretch, housing inflation is not quite as hot in the resale market where price appreciation has slowed to 5.2 percent over last year, the slowest pace in eight months. Perhaps this slight cooling can be explained by the relative resurgence in first-time homebuyers. At 33 percent, the June data revealed that first time homebuyers had the healthiest showing since mid-2012.
The question is where does the market go from here? Bank of America's Michelle Meyer and her crack team of housing analysts recently endeavored to answer that very question.
"Looking ahead, a strong labor market and rising incomes should support the renter-to-homebuyer transition," the report started off optimistically. Then the however arrived in the form of, "though tight credit conditions remain a challenge."
Wait a minute. Haven't we been reading for months about the renaissance in mortgage lending tied to a relaxation of standards? It is certainly the case that larger credit unions have been underwriting mortgages at a fair clip. And there's plenty of proposed legislation out there to ease the regulatory burden.
For now, at least according to the Mortgage Bankers Association's Credit Availability Index (MCIA), it's become increasingly difficult to qualify for a mortgage despite mortgage rates being just above their lows for this cycle. As of June, the MCIA was at its lowest level since February 2015; it's been sliding for eight months now. At the same time, the difference between jumbo (for homes priced above $417,000) and conventional mortgage rates is the widest since March 2011.
"This shows that despite falling interest rates, there is a heightened sense of risk aversion in the market," concluded BofA's team.
Where does that leave potential homebuyers?
One answer to this question is, "at home," as in the home they grew up in. A recent analysis by the Pew Research Center found that for the first time in 130 years, Americans between the ages of 18-34 are more likely to be living with their parents compared to any other living arrangement. Some 32.1 percent are bunked up with their parents while 31.6 percent live with a spouse or significant other; only 14 percent live alone.
The sunny side of the story first. The stigma of living at home has worn off. It's just economically easier to get that law degree or MBA while living at home. And then there's always mom's cooking (if she's a good cook, that is.)
The less bright reason is also culturally-driven. It's no secret that many millennials are drawn to big cities. The problem, as per a recent Zillow study, is that lower income earners would need to fork over 30 percent or more of their monthly income to make a mortgage payment in one third of major housing markets. The brighter the lights and bigger the city, the more you would spend leaving less for every other expense. So you live with your folks...if that's an option.
The truth is, in recent years, millions who can't afford to buy a home have been forced into the rental pool where inflation has also been unbridled. Typically, the rental inflation captured in the consumer price index is too kind, tracking at unrealistically low levels; for the record, it's risen by 3.8 percent over the last year.
Clearly we've crossed the Rubicon to atypical. Today, the market inflation rate captured by private firms is running belowthat of the CPI; it's at 3.5 percent over the last year as oversupply finally collides with unaffordability. That's bound to be welcome news as rent inflation has been running closer to five percent since 2014.
The culprit in the apartment arena may have a familiar ring to it. Last year, three out of every four apartments constructed were for the luxury sector, continuing a trend that's been firmly in place since 2012. Making matters worse, realistic and mutually beneficial public/private partnerships have also dried up in recent years, yet another reflection of the gridlocked economic potential trapped inside the Beltway.
It's easy enough to say that something has to give. For the moment, it appears as if that something is apartment rental rates, a welcome development. Over the longer haul, though, even the millennials have to settle down and have 2.4 kids and get a dog who enjoys a backyard in a home they own.
We can only hope Mohtashami is wrong though his reasoning is sound: "I call it the 'Tiffany Effect.' Just like most couples cannot afford an engagement ring that comes in that distinctive blue box, only the very fortunate few will be able to afford a new home."
Of course the hope is that household formation kicks up to two million a year or more from here on out as the sheer number of millennials entering their prime earning years simply forces up the ranks of first-time homebuyers.
"The massive demographic push that will come in years 2020-2024 will increase housing demand," concedes Mohtashami. "But it won't be as strong as some of my bullish friends in the housing community are betting on."
What a beginning to the century it's been for housing. It started with low interest rates fueling unfathomable home price appreciation. Sixteen years later, it's an Altered State of being with low interest rates driving rampant rental inflation, even as median incomes remain 1.5-percent below their 2000 levels.
On whose watch was this fright show produced? Who wrote the script being played out in all its gory detail across all 50 states of the residential real estate map?
Meddling in markets never ends well. Though much hope is pinned on housing being the exception to this rule, the odds are stacked against a miracle outcome. They say power corrupts absolutely. After nearly 30 years, one can only hope the lesson has also been learned that lower for longer also distorts indefinitely.
Read more: http://www.minyanville.com/business-news/markets/articles/2523Housing-2523RealEstate/7/28/2016/id/57914#ixzz5NltIHuuS