Blame the boomers!

Posted on September 15, 2023 by grim

From Fox:

Why are home prices so expensive? Blame the boomers, Barclays says

U.S. home prices across the country are surging even with the astronomical rise in mortgage rates, putting ownership out of reach for millions of Americans. 

The spike in interest rates – which topped 7% last year for the first time in two decades – has created a “golden handcuff” effect in the housing market: Sellers who locked in a record-low mortgage rate of 3% or less during the pandemic began have been reluctant to sell and take on a more expensive option, leaving few options for eager would-be buyers.

The number of available homes on the market at the end of August was down by more than 9% from the same time last year and down a stunning 45% from the typical amount before the pandemic began in early 2020, according to a recent report from Realtor.com.

But there’s another factor driving home prices higher, according to Barclays economists; baby boomers. In a recent analyst note, titled “Blame the Boomers,” the strategists argued the aging of America is spurring more household formation.

“The US housing sector is on the upswing again, even with mortgage rates at multi-decade highs,” the strategists, led by Jonathan Millar, wrote. “Although much has been attributed to shortages of existing properties and mortgage lock-in effects, we think strong demand is a symptom of the aging population.” 
…
It may seem “paradoxical,” because an aging population tends to require fewer homes. But that’s not the case with the baby boomers, who are currently between the ages of 57 and 75. Boomers are reaching retirement age and forming new households, either due to divorce or death, but they aren’t freeing up existing supply.
…
“While it is likely true that older people tend to prefer smaller housing units, it is not true that an older population requires fewer housing units,” Millar said. 

Although there have been “notable” increases in demand from the younger population, nearly all additional demand is explained by the aging population and significant increases in households, according to the analysis. 

Barclays anticipates the imbalance between excessive demand among boomers and limited supply to last for several years. 

Posted in Demographics, Economics, Housing Bubble, National Real Estate | 68 Comments

Lonely at the top

Posted on September 14, 2023 by grim

From ATTOM:

New Jersey And Illinois Have Highest Concentrations Of Housing Markets At Risk Of Declines

ATTOM, a leading curator of land, property, and real estate data, today released a Special Housing Impact Report spotlighting county-level housing markets around the United States that are more or less vulnerable to declines, based on home affordability, foreclosures and other measures in the second quarter of 2023. The report shows that New Jersey and Illinois have the highest concentrations of the most-at-risk markets in the country, with the biggest clusters in the New York City, Chicago and Philadelphia areas. The South, along with other parts of the Northeast, are generally less exposed to market woes.

The second-quarter patterns – derived from gaps in home affordability, underwater mortgages, foreclosures and unemployment – revealed that New Jersey and Illinois had 23 of the 50 counties most vulnerable to potential drop-offs. Those concentrations dwarfed other parts of the country amid a time of significant uncertainty when the U.S. housing market was rebounding from a period of flat or falling values.

The 50 counties at the top of the most vulnerable list included eight in and around New York City, six in the Chicago metropolitan area and three in or near Philadelphia. Another six were scattered through northern, central and southern California. A majority of the rest were in Indiana and along the East Coast.
…
Seventeen of the 50 U.S. counties considered most vulnerable in the second quarter of 2023 to housing market troubles (from among 574 counties with enough data to analyze) were in the metropolitan areas around Chicago, IL; New York, NY, and Philadelphia, PA.

The 50 most at-risk counties included two in New York City (Kings and Richmond counties, which cover Brooklyn and Staten Island), six in the New York City suburbs (Bergen, Essex, Ocean, Passaic, Sussex and Union counties, all in New Jersey) and six in the Chicago metropolitan area (Cook, De Kalb, Kane, Kendall, and Will counties in Illinois, and Porter County in Indiana). The three in the Philadelphia, PA, metro area that were among the top 50 in the second quarter were Philadelphia County, PA, Gloucester County, NJ, and Camden County, NJ.

Posted in Economics, Housing Bubble, National Real Estate, New Jersey Real Estate, NYC, Philly | 74 Comments

Sorry about your paycheck

Posted on September 13, 2023 by grim

From the WSJ:

U.S. Incomes Fall for Third Straight Year

Surging inflation gobbled up household income gains last year, making 2022 the third straight year in which Americans saw their living standards eroded by rising prices and pandemic disruptions.

Americans’ inflation-adjusted median household income fell to $74,580 in 2022, declining 2.3% from the 2021 estimate of $76,330, the Census Bureau said Tuesday. The amount has dropped 4.7% since its peak in 2019.

The figures add to the picture of the economic challenges facing households since Covid-19 hit in early 2020. Inflation hit a four decade high last summer as the pandemic upended supply chains and the Ukraine war drove up energy prices. 

This year could be different. Earnings and inflation trends have improvedas a strong labor market and cooling price increases boosted household purchasing power, said Bill Adams, chief economist at Comerica Bank.

“Shifting into the present and into the future, the prospects are better for wages to make up for some of the ground lost during the last couple of years,” Adams said. 

Wage growth for the typical worker outstripped inflation starting in December 2022, with inflation-adjusted wages rising about 3% in July, according to data from the Atlanta Fed Wage Tracker and the Labor Department. 
….
The Census Bureau, in its annual report card on the financial well-being of U.S. households, said median household incomes in 2022 dropped by 3% to 5% in the West, Northeast and Midwest, while the South was unchanged.
…
A broader unofficial measure of poverty that accounts for taxes and noncash government aid rose sharply last year to 12.4% for the overall population and children. The increase was linked to the expiration of several pandemic-related tax credits, especially one for children, according to Liana Fox, an assistant division chief at the bureau.

Both poverty measures stand slightly above lows reached in 2019 ahead of the pandemic.

Posted in Crisis, Demographics, Economics, Employment, National Real Estate | 57 Comments

NJ DOM on track to break new lows

Posted on September 12, 2023 by grim

From Redfin:

New-Jersey Housing Market Overview

Posted in Demographics, Economics, Housing Bubble, New Jersey Real Estate | 78 Comments

New home prices might not be what they seem

Posted on September 11, 2023 by grim

From Wolf Street:

Mortgage-Rate Buydowns by Homebuilders Are Now All the Rage to Prop Up Sales, Lowering Effective House Prices in a Big Way, but Don’t Get Picked Up by House Price Data

Homebuilders don’t have the luxury of outwaiting the market, or waiting for the Fed to slash rates, or whatever, they must build and sell homes, that’s their business, no matter what the conditions in the market.

And the market is struggling with 7%-plus 30-year fixed mortgage rates and sky-high prices, after a ridiculous free-money spike during the pandemic. Sales of existing homes have plunged by about 25% from the same period in 2018 and 2019, and by about 32% from the same period in 2021, because buyers have pulled back, and the people with 3% mortgages have left the housing market altogether, not putting their homes on the market and not buying homes either, not even looking at homes.

That plunge in sales might be OK with potential home sellers, thinking that this too shall pass, but it’s not OK with homebuilders, and they’ve been adjusting to this market by cutting prices, building at lower price points, buying down mortgage rates, and offering incentives, such as free upgrades.

The latter two – buying down mortgage rates and piling on incentives – don’t show up in the prices of the homes they sell. So the pricing data that we have from the Census Bureau about sales of new single-family houses do not include the costs of mortgage-rate buydowns and incentives.

With mortgage rate buydowns, the homebuilder subsidizes the mortgage payment.

The duration of the buydown can be for a few years, which effectively turns it into a teaser rate that can cause problems when the rate jumps to normal.

Or the rate-buydown can be for the entire term of the mortgage (“permanent”).

The big homebuilders have mortgage-lender subsidiaries that originate the mortgage for their customers and then sell the mortgage to Government Sponsored Enterprises, such as Fannie Mae, which will securitize the mortgages into MBS. For example, the mortgage-lender subsidiary of D.R. Horton is DHI Mortgage Company.

Having their own mortgage lender makes rate buydowns a lot simpler for homebuilders. This is similar to the “captive” auto lenders, such as Ford Credit offering 0% 36-month financing for F-150 XLTs at the moment.

The costs of the mortgage-rate buy-downs can be big, because the home prices are big, and buydowns effectively lower the sales price of the home.

Posted in Economics, Mortgages, National Real Estate, New Development, Risky Lending | 35 Comments

Affordable? Not today.

Posted on September 9, 2023 by grim

From Yahoo Finance:

US Housing Affordability Remains at a Record Low, NAR Says

The National Association of Realtors housing affordability index was unchanged at 87.8 in July, matching the lowest level in data back to 1989. A level of 100 means a family with the median income has enough income to qualify for a mortgage at the median home price.

The typical family spent 28.5% of their income on the principal and interest of their mortgage payment each month, also matching an all-time high, according to the report released Friday. Qualifying income for a mortgage, based on a 20% down payment, was a record $104,496 in July.

“Higher mortgage rates continued to harm affordability despite modestly lower median home prices,” Lawrence Yun, NAR’s chief economist, said in an email. “Consequently, the Federal Reserve is unintentionally widening the social divide by preventing middle-income renters from ownership opportunities.”

Buying conditions have deteriorated swiftly over the last year as borrowing costs climbed and a shortage of available homes kept asking prices elevated. Mortgage rates are now near their highest level since 2000 and many homeowners who locked in at much cheaper rates are reluctant to sell.

The lack of inventory has, in turn, driven up home prices, and allowed the housing market to recoup the nearly $3 trillion in value wiped out last year.

Posted in Economics, Housing Bubble, Mortgages, National Real Estate | 86 Comments

Lazy millennials already gave up

Posted on September 8, 2023 by grim

From Redfin:

Redfin Survey: 1 in 5 Millennial Respondents Believe They’ll Never Own a Home

Nearly one of every five (18%) millennials and 12% of Gen Zers who replied to a recent housing survey believe they will never own a home. 

That’s according to a Redfin-commissioned survey conducted by Qualtrics in May and June 2023. The survey was fielded to 5,079 U.S. residents who either moved in the last year, plan to move in the next year, or rent their home. This report focuses on the 1,340 Gen Z (aged 18 to 26) and 1,973 millennial (aged 27 to 42) respondents. The stat above is based on the following question: Do you believe that you will ever own your own home in the future? Respondents could choose “yes” or “no.”

Lack of affordability is the number-one barrier to homeownership for young Americans. Roughly half of Gen Z and millennial renters who believe they’re unlikely to purchase a home in the near future say the high price of homes on the market is blocking them from buying. That’s the most commonly cited barrier, and it’s followed by several other affordability-related reasons. 

Nearly half (46%) of millennials and one-third (33%) of Gen Zers say their lack of ability to save for a down payment is a barrier, and more than one-third of both Gen Zers and millennials say mortgage rates are too high. Roughly one-third also say they’re unable to afford monthly mortgage payments. About one in five (21%) Gen Zers and 16% of millennials say they need to pay off their student loan debt before they’re able to buy a home.

Posted in Crisis, Demographics, Economics, Employment, National Real Estate | 111 Comments

What happens to NYC rents now?

Posted on September 6, 2023 by grim

From the NYT:

New York City’s Crackdown on Airbnb Is Starting. Here’s What to Expect.

New York City officials on Tuesday are expected to start enforcing strict new regulations that limit residents’ ability to rent out homes through platforms like Airbnb.

The move is expected to lead to the removal of thousands of listings from the platforms. It is the latest and potentially most consequential development in the yearslong feud between big cities and the home-sharing companies.

The city argues that the proliferation of short-term rentals through Airbnb and other platforms has pushed up rents and helped fuel New York City’s housing shortage.

Airbnb has said the new rules amount to a “de facto ban” on the platform, and other critics say the city is bending to the lobbying of the hotel industry and locking out cheaper options for visitors.
…
For years, the city has maintained that existing laws preclude people from renting out homes to guests for less than 30 days, unless the host is present during the stay. The city also asserts that no more than two guests are allowed to stay at a time, and that they must have ready access to the entire home.

But there continue to be numerous listings for rentals of whole apartments and homes, and the city has argued companies like Airbnb are not policing their platforms aggressively enough to root out violators.

A city official claimed in a July court filing that more than half of Airbnb’s $85 million net revenue in 2022 from short-term rentals in New York City came from activity that is illegal. Airbnb disputes the figure.

The new regulations, which the city will begin enforcing on Tuesday after a series of court challenges, require hosts to register with the city to be allowed to rent on a short-term basis.

Posted in Demographics, Economics, New Jersey Real Estate, NYC | 159 Comments

Pay up or walk, suckers.

Posted on September 5, 2023 by grim

From the Star Ledger:

Timing was key in sale of N.J. home for $205K over asking price

Location may be the key word in real estate but, like anything else, timing can also make a difference.

A house in Closter that hit the market in May just closed for $205,000 over its asking price. And the listing agent, Risa Corson of Coldwell Banker Realty, says the “timing was crucial.”

The sellers initially wanted to wait until August to list, but Corson convinced them to list sooner and write into their terms that they couldn’t close until August, when their new out-of-state home would be finished.

“We have a very strong school system, we’re close to New York City and a lot of people want to move to town for the schools and proximity,” said Corson, a 19-year Closter resident herself. “I knew we’d have a better pool of buyers in May than if we waited until the end of summer.”

The four-bedroom, three-bathroom home was listed for $995,000 and sold for $1.2 million. “The house needed some updates but it was well maintained,” Corson said. “It’s on a cul-de-sac.”

There were 40 showings in four days and two offers were made by the second day. The sellers cancelled a weekend open house and asked for highest and best offers on the fifth day. At that point they already had an offer for $1.1 million.

“There was very little on the market in that price range at that time,” Corson said. “I knew given the low Inventory, the time of year and interest rate concerns that time was of the essence.”

A total of 12 offers, all over asking price, were submitted.

Corson sold a house two doors down in November. That one was listed for $999,000 and sold for $1.1 million.

“I even was a little shocked myself (the more recent listing) went that much over asking,” she said.

Posted in Demographics, Economics, Employment, Housing Bubble, New Jersey Real Estate | 63 Comments

Falling out of love with the shore

Posted on September 4, 2023 by grim

From the Star Ledger:

Here’s how the Jersey Shore rental market was this summer and a reminder that it’s not over yet

For the first time in a few years, you might’ve gotten a deal or picked up a prime last-minute rental at the Jersey Shore this summer.

That’s because there were more houses to choose from and demand wasn’t as strong.

The rental markets near New Jersey beaches have been booming since the COVID pandemic as people chose to stay closer to home. That led to about a 25% increase in prices and difficulty in finding a prime house — one close to the beach, with a pool or that allows pets.

But this summer, things normalized. There were more houses in the rental inventory and demand was weaker as people resumed long-distance traveling or balked at the high rental prices while paying more for things like gas and groceries.

“The ‘COVID bump’ that we experienced over the last three summers has finally come to an end,” said Duane Watlington, founder of Vacation Rentals Jersey Shore LLC, which lists properties for rent in Ocean City, Long Beach Island and Wildwood.
…
“While it’s a step back from last two years,” he said, “we picked up a lot of fans during COVID who hadn’t come here. They liked the area and continue to come here.”

Inquiries for rentals started strong in January but came to a standstill from about March until June, said James Ward of Keller Williams Ocean Living in Point Pleasant.

“They’re usually prime booking times,” he said. “I attribute it to people finding deals in other places and generally choosing other options.”
…
The increase in rental inventory, from people who purchased homes the past few years and are now placing them up for rent, has benefitted renters. Some that weren’t fully rented offered price reductions throughout the season — and they increased the pool of homes to choose from.
…
“People are choosing real estate over everything else to invest their money in,” said Ward. “So there is a lot of new rental inventory.”

Watlington, of Vacation Rentals Jersey Shore LLC, has added 500 new listings since the end of last year, bringing his total rolodex to 2,700 rentals.

“This increased inventory gives vacationers a wider selection to choose from across all price levels,” he said.

Posted in Economics, New Jersey Real Estate, Price Reduced, Shore Real Estate | 26 Comments

Buy to Rent Bubble

Posted on September 2, 2023 by grim

From Visual Capitalist:

The Monthly Cost of Buying vs. Renting a House in America

Posted in Housing Bubble | 68 Comments

You aren’t successful enough to afford Bergen County

Posted on August 30, 2023 by grim

From the Record:

First-time NJ home buyer? What today’s low inventory and high mortgage rates mean to you

As if being a first-time home buyer in New Jersey weren’t difficult enough, we can now add low market inventory and high mortgage rates into the mix.

As of this week, the current rates in New Jersey are 7.55% for a 30-year fixed mortgage, according to Bankrate. That’s just below the national average rate of 7.63%. This time last year, the average 30-year fixed mortgage rate was 5.55%.

“Interest rates are staying up, so that’s making people maybe who thought about moving go, ‘Well, I know I can sell my house now, but I don’t want to pay seven and a half percent’ on a mortgage for my next home,” whereas “maybe I’m currently paying three or four percent on my mortgage” for my current home, said Jenn Vongas, a real estate agent with Coldwell Banker Realty in Morris County.

Because of this, New Jersey’s housing inventory has declined 23% over the past 12 months, with 11,404 new listings in July 2022 versus just 8,732 new listings in July 2023.

Between the limited inventory pushing housing prices up and those rising mortgage rates, first-time buyers are being further discouraged from entering the housing market.

“It’s not that there is no inventory, but it’s moving fast,” said Ghada Abbasi, a real estate agent for Coldwell Banker Realty in Bergen County. “So we cannot catch up with the demand.”

Abbasi said first-time buyers are often getting beaten out by individuals with higher purchasing power. Offers made by these buyers are more frequently chosen over offers from first-time buyers simply because they are able to do things like make larger down payments and put in offers over the original asking price, as well as pay in cash.

“The demand is there for the premier buyer, I should say. The buyers who will meet the income requirements, who have the cash,” she said. “Whenever something comes up, they jump on it, overpay for it, and get it.”

Posted in General | 190 Comments

Shrinkflation hits housing

Posted on August 27, 2023 by grim

From the Week:

The answer to rising home prices: smaller homes

With the prices of homes remaining stubbornly unaffordable, the number of available home listings shrinking, and record high mortgage rates, potential homebuyers are increasingly looking to newly constructed homes to fill the gap. Builders are expected to meet the rising demand for new homes while also dealing with soaring construction costs. The solution? New homes are being built smaller and much closer together than before. 

The housing market seems locked in a cycle that is driving the affordability of homeownership down. The average mortgage rates are at the highest they’ve been in over a decade, driven by the Federal Reserve‘s efforts to avoid a recession, The Wall Street Journal reported earlier this summer. The rates keep potential buyers out of the market while simultaneously “discouraging homeowners from selling, limiting the supply of homes for sale,” the outlet added. At the same time, the high demand and low supply are keeping house prices high. 

With the market shrinking, home builders are trying to find ways to make housing affordable in order to entice more customers to buy new homes, and shrinking the size of newly built single-family homes has become a popular way to do that. Reducing the size of new homes helps “cost-constrained buyers” and can “boost the bottom line for builders who are contending with spiraling labor and construction costs,” per a more recent report from the Journal. Data from Livabl by Zonda, a listing platform for new construction homes, showed the average unit size for newly constructed homes decreased by 10 percent nationally, the Journal summarized.

During the pandemic, the number of detached single-family homes increased, but a “succession of economic shocks” has “caused builders to change course,” Zillowreported. Construction starts for typical single-family homes declined 10.1 percent between 2021 and 2022, but starts for houses with less than three bedrooms increased 9.5 percent in that time. Zillow found that “the homes that builders opted to begin work on became smaller, more likely to be attached and more likely to be built offsite.” Attached properties such as condos or townhouses also saw a 2.9 percent increase, compared to detached homes, which fell by 12 percent over the same period. 
…
The trend toward smaller homes is becoming “pretty consistent nationally,” Mikaela Arroyo, director of the New Home Trends Institute at John Burns Real Estate Consulting, told Market Watch. “We’re seeing a lot of deletion of separate, defined spaces,” Arroyo said. Builders are eschewing the kitchen, dining, and living room setup for one kitchen and one “great room.” The kitchens are larger than they used to be “because we’re taking away the dining room,” she added.  And while smaller homes are “not solving the affordability crisis,” they are “creating opportunities for people to be able to afford an entry-level home in an area,” Arroyo said.

Posted in Demographics, Economics, National Real Estate, New Development | 144 Comments

Sales drop, still no inventory

Posted on August 25, 2023 by grim

From Reuters:

US existing home sales slide again, but prices up from a year earlier

Existing home sales fell 2.2% in July to a seasonally adjusted annual rate of 4.07 million units, the lowest level since January, from an unrevised 4.16 million units in June, the National Association of Realtors said on Tuesday. Economists polled by Reuters had forecast home sales would be little changed at 4.15 million units.

Sales fell in the Northeast, Midwest and South, but rose in the West, where home prices have fallen most sharply in the past year. All regions experienced annual sales declines.

Home resales, which account for a big chunk of U.S. housing sales, fell 16.6% on a year-on-year basis in July.

Home prices have bottomed out after being pressured by the Federal Reserve’s aggressive interest rate hikes, but the persistent shortage of properties for sale could limit any rebound as many prospective buyers are forced out of the market.

Mortgage rates have surged again recently to the highest levels in decades, with the average rate on the popular 30-year fixed-rate mortgage topping 7% in the latest week, according to mortgage finance giant Freddie Mac.

There were 1.11 million previously owned homes on the market last month, up 3.7% from a month earlier but down 14.6% from July 2022. At July’s sales pace, it would take 3.3 months to exhaust the current inventory of existing homes, up from 3.2 months a year ago.

A four-to-seven-month supply is viewed as a healthy balance between supply and demand. The median existing house price rose 1.9% from a year earlier to $406,700 in July, the fourth time it has topped $400,000.

Posted in Economics, Housing Bubble, National Real Estate | 103 Comments

You’d be crazy to sell

Posted on August 24, 2023 by grim

Interesting look at mortgage rate lock-in from Fortune:

Posted in Crisis, Economics, Mortgages, National Real Estate | 87 Comments