Financing

Look Who’s Buying Homes

Well, it’s not first time home buyers.  That cohort is usually the driver of a strong housing market.  They feed the bottom of the pyramid, buying someone else’s starter home so they can move up.  However, only 33% of all home buyers in the central Indiana market in 2015 were first time home buyers.  That was the lowest that cohort has been since 1987!  Analysts attribute that to heavier student loan debt, not enough breadwinner jobs, and an aversion to use of credit among millennials.

Ok, let’s talk about who the average buyer in central Indiana was this past year.  They were a married couples, 39 years old, and making $77,800 a year.  This was about five years younger than what was seen nationally; and that could probably be accounted for by the fact that our prices are so much more affordable than most other places.

Two out of three buyers were married couples, followed by 15% single females, 9% single males, and 7% unmarried couples.  11% of all homes purchased were done so to include multi-generational living arrangements.

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Millennials Nervous About Rates

A recent survey showed Millennials to be nervous about rising interest rates, and much more so than other age groups.  Undoubtedly, the burden of student loan debt hangs heavier on this cohort than others, and makes the thought of anything debt related stomach problems.

But, before everyone runs around like Chicken Little shouting “the sky is falling”, let’s consider what the latest interest rate bump from the Fed actually amounted to.  The bump (maybe we would be better to call it a nudge) was less than ¼%.  To put that in dollar terms, on a standard 30 year fixed rate mortgage of $100,000 a quarter percent nudge translates to an extra $10.57 per month (meaning one might have to skip stopping at Starbucks once every couple weeks if they want to get out of Mom & Dad’s basement).

Millennials certainly don’t need another reason to shy away from becoming home buyers.  This past year saw the share of first time home buyers slip for the third consecutive year, and to hover at the lowest point in three decades.  Millennials would normally be leading the first time home buyer charge.  But for now, they remain nervous.  To learn how to make your homebuying dollar go further, call me.

Reasons for the lack of inventory

A few weeks back I posed the question- Why is there a lack of inventory when sales numbers are up and prices are too?  I mean, on the surface that just doesn’t make sense— if prices are up and there are ready, willing and able buyers, then sellers should be pushing and shoving to get in line to get their houses sold.

Here’s a few thoughts on why sellers are sitting on the sideline:

1)  Owners lack sufficient home equity to be able to sell and then buy their next house.  Yes, prices are up, but much more so in certain areas than in others.

2)  Mortgage lending requirements remain tight, forcing some to the sidelines because they won’t now qualify or they fear they won’t.

3)  People that were hurt financially in the Great Recession just aren’t up for the fight that buying a new home would entail.

4)  Unless an expanding family is the reason prompting a move, people want and are demanding HGTV quality in their next home, and those high end amenities just don’t measure up with their budget.  ie. champagne tastes, beer budget syndrome.  People figure that if they’re going to downsize they must have a higher end lifestyle, and those may be unrealistic expectations based on their financial situation.

5)  Wages haven’t kept pace with costs.

6)  Millenials are not jumping into the home buying experience in sufficient number to push the home buying train out of the terminal.  Millenials are lagging far behind previous generations in buying at the same age.  Because of this, Gen Xers have nobody to sell their homes to so they, in turn, can purchase the boomers’ homes.  There are lots of reasons why Millenials are not buying.  These include chronic underemployment (the barista with a degree syndrome), burdensome student loan debt, and an adversity to taking on housing debt due to their earlier observations of their parents losing homes in the Great Recession.

At any rate, inventory per buyer is down 15% from a year ago and almost half from 4 years ago.  What changes the trend?  Basically, one or more of the aforementioned factors must be unwound.  Only time will tell how that plays out.  Stay tuned.  I’ll keep you posted.