Below median for-sale inventories remain low
Inventories of below-median homes are well below historic norms due to the large numbers of underwater borrowers, leaving first-time homebuyers frustrated.
Back in late 2012, I predicted that Below-median home inventories may not recover for years, which it has. My reasoning was simple.
For home inventories to recover, sellers must come back to the market. Since so many homeowners are underwater or lack the equity for a move up, particularly at lower price points, very few organic sales occur on below-median properties.
Since lender can-kicking kept the foreclosures off the market, what was once a source of supply actually became a restriction of supply. Given these circumstances, it will be several years before inventories of below-median properties recover and provide opportunities for owner-occupants to enter the market.
3 factors blocking homeownership
[The three mentioned are not important, and the lack of equity, which is the real cause, is not mentioned.]
February 22, 2017, Brena Swanson
Whether Millennials want to buy a home or not, there first has to be a home available to purchase. In an interview with HousingWire, Daren Blomquist, senior vice president at ATTOM Data Solutions, identified three key factors keeping housing inventory in a drought, barring entrance for aspiring young homeowners.
The current inventory shortage isn’t new though. The same challenges plagued housing in 2016 are predicted to stick around through 2017.
Beyond the standard explanations for why Millennials put off buying a home, such as student debt, tighter lending standards and simply not wanting to sacrifice everything to buy a home, young home shoppers have to choose from a shallow pool of home options and compete with millions of other young buyers trying to do the same. It’s a hard situation.
Before the housing bust, the fear of being priced out was nearly universal. Everyone, everywhere felt they must buy a house at their earliest opportunity. The housing bust changed all that.
People learned a number of valuable lessons:
- house prices could go down,
- priced out is a myth,
- substituting down in quality just to own isn’t wise,
- priced out can quickly turn to priced in, and
- buy when it’s right for your family.
In short, the urgency is gone. There is no better evidence of this fact than the noticeable change in buyer psychology over the last decade.
Before assuming Millennials don’t want to buy a home, take a look at the three factors they’re facing regarding limited inventory.
1. Average homeownership tenure:
Since the early 2000s, there’s been a significant shift in the average homeownership tenure, nearly doubling in time length. In 2007, the average tenure came in at 4.08 years, compared to 7.88 years a decade later in 2016.
As a result, Millennials can’t buy as much since fewer homes are being listed on the market for sale.
This is exactly what we would expect to see since so many are trapped in their homes due to their bubble-era mortgage.
2. Everyone refinanced
Blomquist went on to explain that thanks to historically low interest rates, everyone who could has already refinanced into a low rate and they want to keep that rate.
Although this is great for everyone who secured a low rate, it’s also stopping homeowners from leaving their starter home and upgrading into a new home.
And rates are only projected to rise. In the two weeks after the election, the 30-year mortgage rate jumped 40 basis points, surging to 3.94% and now sits above 4%.
This is a red herring. If homeowners with low rates had the equity and the desire to move up, they would. The fact is they don’t have the equity because when many of them refinanced, they took this money out and spent it.
People also remain in their homes longer because even with the newfound equity from reflating the old housing bubble, without increases in pay, they face limitations on borrowing enough to complete a move up. While their house increased in value, the move-up house they desire also increased in value, and unless they earn more money to borrow enough to make a trade, they gain little by moving. Since the last decade witnessed anemic wage growth, fewer people can borrow enough to move up.
3. Investors are going after starter homes
Investors are picking off a lot of the ideal homes for first-time homebuyers.
Blomquist said ATTOM Data Solutions looked at more than 23,000 properties owned by Blackstone Group’s single-family rental operator, Invitation Homes, which is about 48% of their total portfolio, and found a lot of their inventory is what Millennials would be interested in: 3-bed, 2-bath homes with average square footage of 1,871 and value of below $250,000.
Investors are a convenient scapegoat, but they represent a tiny fraction of the housing market. Nearly 5,000,000 houses a year sell on the MLS. If hedge funds acquired even 100,000 of them over a multi-year stretch, this represented far less than 1% of the transactions in the market.
4. Lack of equity is the real reason people don’t move on and move up
Most people who bought in 2005 are only now above water — and that assumes they had an amortizing loan and dutifully made all their payments. Those with loan modifications had the fees and missed payments tacked on to their mortgage balance, and many (if not most) private loan modifications don’t amortize, so those borrowers are likely still underwater. Those borrowers are still trapped in their entry-level homes 10 years later.
For many homeowners, the last ten years in borrower purgatory felt more like borrower hell, trapped beneath their debts. Any remedies for their situation carried negative consequences. Many people opted to strategically default, and I openly encouraged this action for years because it immediately relieved the emotional distress and put people on a path toward building a new future. However, those who strategically defaulted had to pay a price of a lowered credit score and lingering debt collection issues. Many others borrowers opted to sell short, but this too had credit implications. A few even sold the house and paid the shortfall out of savings, but these sellers were the exception rather than the rule.