10 Real Estate and Housing Trends Going into Late 2019

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Credit unions in California and Nevada could use a glimpse into the residential real estate market’s future as they enter the second half of 2019. Here are 10 issues and trends in housing to keep an eye on:

Could California Residents Become ‘Majority Renter State’ by 2025?
California’s homeowner affordability stands at 32 percent compared to 57 percent for the rest of the United States. With more than 100 cities designated as “majority renter cities” across the state, it’s possible California could become a “majority renter state” by 2025. About 750,000 residents have migrated out of California from 2010 – 2018 to other states with less or no zoning/housing supply constraints, making the housing issue an economic viability issue as well. It’s forecasted that home sales in the state will dip 4.3 percent for 2019; the median home price will increase 4 percent; and the 30-year-fixed mortgage interest rate will remain around 4 percent. (Click here to view the report)

Housing, Earthquakes and Other Issues: Californians Have Opinions
About 78 percent of California voters (mixture of homeowners and renters) say the state is in the middle of a “housing crisis.” Only 53 percent, including 40 percent of voters 18 – 34 years old, say they can afford to live in the state due to housing costs. Additionally, 72 percent are concerned there will be a major earthquake affecting their community within their lifetime. By region, this concern ranges from 57 percent living inland to the highest, 80 percent, in Los Angeles County. However, only 52 percent (including 49 percent in Los Angeles County) think they are adequately prepared to deal with a major earthquake. Nonetheless, 92 percent say recent earthquakes do not make them consider moving out of state. (Click here to view the report)

San Francisco, San Jose, Riverside are Unique as U.S. Median Hits Peak
U.S. single-family homes and condos (combined) sold for a median price of $266,000 in the second quarter, up 6 percent from a year ago — reaching a new peak (not inflation adjusted). Also, homeowners who recently sold had owned for an average 8.09 years, also reaching a new peak. Homeownership tenure averaged 4.21 years from 2000 – 2007. Among 149 metropolitan areas, the highest average “returns” were in San Jose, CA (85 percent return); San Francisco, CA (72 percent return); and other regions on the West Coast and Southwest. In large metropolitan regions, San Francisco was No. 1 in longest average time that sellers lived in their homes (10.3 years); and Riverside, CA was No. 1 in highest share of sales to Federal Housing Administration (FHA) mortgage buyers. (Click here to view the report)

Foreigner and Immigrant Home Purchases Plunge in California
Foreign homebuyer purchases fell 36 percent from a year ago in the United States from $121 billion to $78 billion (both non-residents and recent immigrants combined), with California being a top state in focus. U.S. purchases declined to 183,100 properties (from 266,800). “A confluence of many factors — including slower economic growth abroad, tighter capital controls in China, a stronger U.S. dollar, and low inventory of homes for sale — contributed to the pullback of foreign buyers,” states the report. “However, the magnitude of the decline is quite striking, implying less confidence in owning a property in the United States.” California is the No. 2 state for international purchases (behind Florida), accounting for 12 percent of purchases. (Click here to view the report)

California is a Mixed Market as U.S. Price Growth Slowdown Levels Out
The average price-appreciation rate for homes in the largest 100 U.S. markets could be 3.7 percent from June 2019 – June 2020. This signifies a leveling-out after four quarters of year-over-year decline. “This flattening indicates that although there is definite softness overall in the housing market, the fundamentals are healthy,” the report states. Softening of mortgage rates over the past 9 months helped prop up falling values. However, 5 percent of these markets are projected to depreciate over the next 12 months. “California is expected to continue softening significantly, with annual price appreciation for the Los Angeles and San Diego markets well under 5 percent,” it states. “The Bay Area is expected to fare only slightly better, with appreciation just above 5 percent — well below its double-digit readings in the recent past.” (Click here to view the report)

Mortgage Rates Lowering, Refinances Up, and Affordability Perplexing
The interest rate on a 30-year fixed mortgage could average 3.7 percent for the rest of 2019 and all of 2020. Total U.S. mortgage origination volume will grow 7 percent in 2019 (to $1.75 trillion) on the back of a surge in refinances and “moderate” home price growth. Refinance activity will represent 32 percent of originations in 2019, up from 29 percent in 2018. Both new and existing home sales are expected to pick up through the rest of 2019 as inventories improve. “However, the housing industry still doesn’t have an answer for the related problems of low supply and affordability,” the news release states. “The lack of affordable inventory continues to cap sales.” (Click here to view the reports)

Is Home Price Growth vs. Household Income Growth out of Whack?
U.S. median home prices have increased at four times the rate of household incomes since 1960, leading to imbalanced price-to-income ratios in most major metropolitan areas. Nationwide, rents have increased at twice the rate, making saving for a down payment increasingly difficult. A healthy price-to-income ratio is 2.6 (it would take 2.6 years of median household income to purchase the median home), but today’s ratio hasn’t been “healthy” since the late 1990s. Only 16 out of the 100 most populated cities in the United States are below this 2.6 ratio. (Click here to view the report)

What’s Behind the Recent Rise in U.S. Homeownership Rate?
After dropping over several years to a low of 63 percent in 2016, the U.S. homeownership rate is finally ticking back up. “We expect the homeownership rate to further close the gap as millennials continue to make important decisions, such as attaining an education and, later in life, getting married and having children,” the report states. “Many millennials have prioritized furthering their education, thus delaying getting married and having children, which are critical lifestyle triggers to buying a first home. However, like their predecessors, millennials view homeownership as an important life goal.” (Click here to view the report)

One-Quarter of Homeowners Plan to use HELOCs for Renovations
About 25 percent of U.S. homeowners who plan to renovate their property during the next two years say they will use a home equity line of credit (HELOC). The majority (48 percent) will use their savings, and the remaining 27 percent will use a credit card or personal loan — or combination of both. Additionally, nearly half of U.S. homeowners plan to renovate, with one-third planning to spend more than $50,000. However, 23 percent say they could not define what a HELOC is; 32 percent didn’t know their home’s current equity value; and 16 percent did not understand the impact of fixed versus variable interest rates on monthly payments. (Click here to view the report)

Growth in Home Improvement Spending is Slowing Down
Growth in U.S. home-remodel spending is expected to slow considerably between mid-2019 and mid-2020. Homeowner expenditures for improvements and repairs will shrink from 6.3 percent growth during 2018 – 2019 to just 0.4 percent within the next 12 months. “Declining home sales and homebuilding activity, coupled with slower gains in permitting for improvement projects, will put the brakes on remodeling growth,” the report states. “However, if falling mortgage interest rates continue to incentivize home sales, refinancing, and ultimately remodeling activity, the slowdown may soften some.” (Click here to view the report)

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