Tuesday, July 8, 2014

The Housing Market is Faltering #2

Below is another recent article about the faltering housing market.  This author points out that the interest in home ownership is being usurped by concerns for having enough money for retirement, not to mention all the other things such as lending standards, etc.  One thing I have noticed in the younger generation (mostly millennials) is that they do not consider home ownership as an investment.  A very different view from earlier generations.

The article is in italics and the bold is my emphasis.  From Market Watch:

For Rebecca Diamond, a marketing manager in Randallstown, Md. who’s getting married this month, buying a home with her new husband would seem like the logical next step.
But she’s not even considering it.
“No interest whatsoever. I don’t want the cost and responsibility of one right now,” she says. “Let [the landlord] have all the headaches,” adds Diamond, who rents a three-bedroom condo outside of Baltimore.
She’s hardly alone. Just 74.4 million American households — less than 65% of the country — owned the homes they lived in during the first quarter of this year, according to a U.S. Census Bureau report this week. That was the lowest level since 1995 and a big drop from 2006, when a peak of 76.5 million households, or 68.9%, were owner-occupied.
In fact, the National Endowment for Financial Education released a poll this week that showed only 13% of Americans considered home ownership as their “top long term financial goal,” down from 17% in 2011.
“The American dream has long been associated with the gratification and security of a comfortable home within the picturesque borders of a white-picket fence,” said Ted Beck, president and CEO of the NEFE, which is based in Denver. “However, today the perceived importance of home ownership appears to be waning.”
Instead, according to the poll, a whopping 50% said that their sole long term financial goal was to save enough for retirement, up from 43% three years earlier, even though most financial planners say owning a home is the best way to build wealth that can be tapped once you retire.
Stephen Alberts, a Long & Foster real-estate agent in Williamsburg, Va., who does many of his deals in the coastal retirement community of Virginia Beach, says his business is tougher than ever. “Even I’ve got to pound the ground,” he said. “Buyers just aren’t coming to me anymore.”
For him, it’s all about the economy.
“In most markets they’re worried about the security of their jobs, so they’re reluctant to put roots down and get stability.” Alberts says his market generally bucks the trend since Virginia Beach is a destination for many to spend their golden years. “We are more stable as we have retirees who have already made their money,” echoing NEFE’s poll numbers showing retirement savings is driving consumers.
Still, Albert says first-time home buyers are put off by rising prices and multiple bids. “We also have to do a lot of re-education of our buyers,” he said.
For realtors too, it’s credit scores being too tight.
According to the National Association of Realtors, the average accepted credit score on conventional mortgages was around 720. “A credit score that would have gotten you a mortgage before 2008 is now below the average rejection score,” said Walt Molony of the National Association of Realtors.
“Things are improving, but at a snail’s pace,” he said. The NAR points to its “Housing Affordability Index,” which shows that if a U.S. family was earning the median family income in 2013 of $63,623, it would have 175% of the necessary income to buy a median single family home priced at $197,400.
That equates to about 20 million households able to purchase a home, but choosing not to. And Molony points the finger at the banks more than anything else. “The problem is overly restrictive mortgage lending standards, relying on arbitrarily high credit scores,” he said.
That’s not necessarily true, said Darren Ferlisi, a loan officer with Integrity Home Mortgage Corp. in Frederick, Md., who said FICO scores of 640 and in some cases as low as 620 will qualify for a mortgage today. “If anything, we have more flexibility than we had two years ago,” he said.
Still, as a result of the Great Recession, many people who otherwise had 9-to-5 jobs now are freelancers or self employed, which makes proving two years’ worth of income difficult, especially when those first two years were poor ones as their businesses were just getting off the ground, says Greg McBride, chief financial analyst at Bankrate.com.
“The problem is a lot of those people don’t have $20,000 or $30,000 to make a down payment, and if they’ve got two years of tax returns, in this economy, they might be losses,” McBride said. “A loss for tax purposes is still a loss when it comes to qualifying for a home mortgage.”
McBride says he sees the smaller number of Americans making a home their ultimate financial goal as a good thing. “People compromise their financial goals in pursuit of home ownership and they aren’t putting enough into their retirement or their 401(k) and they end up house rich but cash poor,” he said.
Once more Americans feel financially secure about their retirement, they’ll return to the housing market, he said. “They’ve rightly felt burned by the housing bust, but five to fifteen years from now, they’ll be back.” 

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