Opinion: Once jobs come back, Americans will start buying homes again
By Tim Mullaney
Housing is once again the paramount issue for the recovery. Investors get anxious whenever a real estate report is released. Even Federal Reserve Chairwoman Janet Yellen flagged housing as a problem in congressional testimony earlier this month. But there’s little wrong with housing that more jobs won’t cure. The industry doesn’t need to get back to 2005 or 2006 levels. Gone are the days of 7.08 million existing-home sales and single-family new-home sales flirting with 1.4 million a year. Housing just has to run north of recent numbers, about 4.6 million existing-home sales annually and 400,000 new single-family houses. Sales of existing homes rose 1.3% in April to a seasonally adjusted annual rate of 4.65 million, the National Association of Realtors said today. The median sales price of used homes hit $201,700, up 5.2% from a year earlier. There are lots of reasons why it should, beginning with accelerating job growth. But there are also five reasons specific to housing that should stem worries.
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1. Affordability is really, seriously good.The median 2013 first-time home buyer had income of $64,400, according to the National Association of Realtors. With a clean balance sheet, Bankrate.com says that buyer can afford a $259,672 home. The national median house price is $201,700. And it’s still 35% cheaper to buy a house than to rent a home nationally, according to Trulia.com. People don’t ignore economics like those forever. They do, sometimes, need time to adjust them to their own income, debt load and credit profile. Speaking of which … 2. Student loans matter, but less than you may think.Student loans are No. 1 on the Worrywart Hit Parade lately. The average undergraduate who borrows money for college piled up $29,400 in debt as of 2012, according to the Project on Student Debt — about $300 a month for a standard 10-year repayment. Why is this not a huge deal? Because those terms mean the borrower’s done at 32; the typical age for a first-time home purchase is 31, near where it’s been for 30 years. By the time the average person is house hunting, the student loans are nearly done, or manageable. Second, in most cities first-time buyers can readily afford homes even with student loans. That first-time buyer earning $64,400 can buy a $212,000 house even with $300 a month in student debt and $300 in car or credit card payments, Bankrate says. That’s still more than the median existing-home price. Still, many families need two workers to buy a house, especially in expensive markets like California, Boston and New York. People are solving income problems by getting more schooling and, realtors say, by waiting until marriage to buy. 3. Where have buyers been? In grad school. Concern about first-time buyers has been driven by NAR stats showing the percentage of first-time buyers to all buyers slipping to 38% from 40%. That’s not huge, especially when you look at the 1.8% annual climb in graduate school enrollment, to 1.7 million, between 2002 and 2012, according to the Council of Graduate Schools. The reason is obvious: 25- to 34-year-olds with graduate degrees earn about $14,000 a year more than college graduates, and double what high-school grads that age earn, according to the National Center for Education Statistics. The raises cover payments on their average of $16,000 of loans per year spent in grad school. That leaves them more, not less, money for houses if they want them — other than outliers who borrow six figures to study art history. That’s especially valuable in an economy where raises are otherwise hard to get. 4. The car recovery shows the way for housing.There’s been a wave of pop psychology holding that millennials love cell phones too much to want cars or homes. Eh. Don’t take it seriously. Actually, car sales to millennials follow economic cycles. In 2012, sales to buyers younger than 34 rose faster than the overall market, Edmunds.com economist Lacey Plache says. In 2013, they rose again, but more slowly than the overall market — she blamed slow job growth among young workers. Young buyers are more likely to buy sports and luxury cars than other buyers, Plache said, and that’s a sign millennials’ values about homes and cars aren’t different after all. “You don’t do that if you don’t like cars,” Plache said. “If you have a job and can support a household, you’re much more likely to start a family.’’ 5. Easier housing credit is coming.Car credit got easier beginning in 2012 — and housing credit is following.Last week, Federal Housing Finance Agency Chairman Mel Watt said FHFA is taking technical steps to make mortgage lending easier for banks. They’re already easing: The average credit score for loans acquired by Fannie Mae has declined 16 points, to 741, in the past year; the share of loans going to borrowers with sub-700 scores on the 850-point scale is nearly 17%, up from 7% in last year’s first quarter. It’s about time. Of Fannie-owned loans made since 2009, far less than 1% are seriously delinquent, a quarter of pre-bubble norms. One reason: Fannie-backed lenders kept raising standards into 2012. Credit has been too tight, and policy makers are finally loosening it. No one would deny that housing had a brutal bust, leading to a painful and very slow recovery. But every metric that looks bad looked even worse in 2012, including this week’s stories about still-underwater borrowers. And with employers adding 288,000 new workers in April and May, and unemployment-insurance claims at seven-year lows, the job outlook looks better. (The average of new claims over the past month dipped by 1,000 to 322,500, the government said today.) Affordable houses, easing credit and more jobs. We could improve some things about that outlook, beginning with better pay raises. But the big three are enough, and that will show soon, regardless of April’s housing reports.
Author:Ralph and Karen Chiodo Phone: 610-517-4117 Dated: May 22nd 2014 Views: 827 About Ralph and Karen: THE CHIODO TEAM - Ralph Chiodo Broker / Owner 610-792-4800 x 111
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