Tian Liu, who has authored Genworth Mortgage Insurance’s Weekly Economic Report, tracks the latest US economic trends. In the year 1997, he started his career in Economics at the Australian Treasury Department. Then, post 2007, he was employed with Cemex and started following the US housing market as the Director of Economics. Thereafter, he joined Owens Corning in the year 2011 and started leading the company’s economics team. In the year 2014, he became the Chief Economist of Genworth Mortgage Insurance. He has attained his undergraduate degree in Economics from the Australian National University and Master’s degree in Economics from the University of Chicago. The latest home ownership trends, according to him, are discussed in the following points.
Various Factors Impacting Housing Supply and the Expected Trends in 2019
For the past couple of years, there has been inventory shortage in housing supply and there are several reasons for the same. Firstly, the level of construction has been low, but has improved over the last couple of months. Secondly, there has been no V-shaped recovery like the past cycles, due to which the gap between demand and supply has only widened.
Where demand for housing is concerned, there has been a surge in recent times; primarily, because the job market has improved. Thus, home buyers are investing in the housing sector. Moreover, the Millennials are causing an upsurge in demand because they have reached marriageable age and are looking to start families.
Another factor that has an impact on inventory is the lack of repeat buyers. Presently, they are selling their houses to purchase new ones; hence, there is low impact on inventory. Conversely, first-time home-buyers are shifting out of their parents’ houses to start a new home; as such, they are causing a drain on housing inventory.
Due to these aspects, with an improvement in inventory because of rise in construction and more first-time homebuyers entering the market, there may be no change in the scenario in 2019.
Current Housing Market Trends Vs the Past Ones
Pertaining to your query on how current housing market trends compare to previous growth figures, there is need to understand that in the current cycle, there is absence of a V-shaped acceleration, unlike the earlier ones. Also, there has been no wide-ranging recovery across all housing price levels either. Towards the higher spectrum of the price points, there has been marginal recovery; but, the lower-end housing price points, those under $200,000, have not shown recovery.
As per the May edition of the First-time Homebuyers Report, there has been a rise in first-time buyers since the past 3 years. During the years 2014 and 2017, an increase of 40 percent in home sales was recorded. However, there has been no improvement in the repeat buyer segment; yet, if there is enough supply, there could be an improvement in this market because homeowners have owned the houses for long and can enjoy greater home equity.
Generally, when home equity accumulates over the years, the homeowners look to upgrade their houses. But, in the present scenario, people are not able to do so because of the lack of inventory and also, increasing competition from the first-time home buyers. Although, there will be deceleration in the first-time homebuyer market because there has been enormous growth over the past 3 years in this segment due to the recovery of markets, post the housing crisis.
How to Drive Millennials to the Housing Market?
To drive more Millennials in the housing market, they need to be educated about the various borrowing options. Usually, they perceive that a large down payment has to be paid to own a home and they are driven away. However, the first-time home buyers are not aware that they can pay only 3% down payment as per conventional mortgages. At present, the FHA loans (they are insured by the Federal Housing Administration) are popular among the first-time buyers, followed by the traditional loans having mortgage insurance. The FHA ones are driving more people to own homes because the patrons do not have to pay a large down payment and also, can enjoy the benefits of mortgaged loans.
Also, the Millennials should be well-informed about their choices in housing options, depending on whether they want accommodation for short or long term, for driving them to the housing market. If they intend to reside at a given location for only a short duration, then they must consider renting homes. On the other hand, if they want to start a family, then owning the houses would be more suitable because they can enjoy the benefits of appreciation in home rates over time.
Thirdly, prices can affect the decision of home buyers as well. With a huge population of Millennials entering the market, there is bound to be a rise in demand; and subsequently, the prices of homes tend to increase. Thus, the buyers must think of buying homes earlier, and not later, to save on costs.
Changes in Homeownership Trends Pertaining to Diversity
Concerning diversity over the past decade, there has been a change in the home ownership trends as well. Now, there is greater focus on the expansion of credit and to make housing products affordable as well as available to prospective homebuyers. America’s housing market is a crucial component of the country’s economy and all measures to fuel the given sector are being implemented.
Expectations from the Housing Market for the rest of 2018
For the last quarter of 2018, housing inventory will continue to be challenging and, probably, will be flat by the year end. Yet, the sales of new homes will record a rise of 10-15%, with homebuilders stepping-up their production. Pertaining to home prices, there will be appreciation of 6-7% because of a rise in demand and low rate of construction.
Moreover, the homebuilders have dealt with rising costs due to the imposed tariffs that have affected the overall housing market in the past couple of months; and is contrary to what is required of policymakers, that of making housing more affordable.
Regarding home ownership, as per estimates, there will be a 1% rise year-over-year for the remainder of 2018. Also, the recovery will be the strongest among the younger Millenial households entering the housing market.