Monthly Archives: May 2016

Coming wave of new homebuyers

Speaking before a packed house gathered Wednesday on the 7th floor of the Newseum in Washington, D.C., CoreLogic’s chief economist, Frank Nothaft, told the crowd of housing insiders that anyone waiting for any dramatic shifts in housing, interest rates, or otherwise is likely to be left waiting.

Nothaft, speaking at the “Data, Demand, and Demographics: A Symposium on Housing Finance” presented by the Urban Institute and CoreLogic, told the crowd that housing is entering a new normal.

And that new normal means interest rates will be staying low, well below 5% for the next several years, amid shifting demographics bringing new homebuyers to the market.

“I think mortgage rates are going to be with us for a long period of time,” Nothaft said. “The expectation in capital markets is no rate change from the Federal Open Markets Committee today. We may see an increase in federal funds rate in December.”

Nothaft added that Wednesday’s FOMC announcement could provide more of an indication on the willingness of FOMC members to increase rates before the year is out.

But even if the FOMC does raise rates, mortgage interest rates will stay low, Nothaft said, but perhaps not as “dirt cheap” as they are right now.

“I think we’ll see rates rise from dirt cheap to a very low level as we move into next year, still remaining below 4% all through next year,” Nothaft said. “We’re evolving into a new era in mortgage rates.”

Nothaft also projects four other trends that will emerge over the next several years that will shape housing’s new normal.

Chief among those is a shift in household composition and a change in demographics as more Millennials approach homebuying age.

Nothaft presented a chart during his presentation that highlighted the difference between the largest age cohort in the U.S. population, ages 24 and 25, and the average age of the first-time homebuyer, which is 31.

The bottom line: Millennial buyers are coming, and they’re coming relatively soon.

Click the image below for a graphic breakdown of population age.

Nothaft also pointed to the shift in demographics as to where the new buyers are coming from, outside of the coming wave of Millennials.

According to Nothaft, over the next 10 years, three-fourths of new households will be minority-headed.

To further illustrate that, Nothaft provided the percentage breakdown of all households in 2015. Among the 117 million households in 2015, 68% of those are white households, while 13% are Hispanic, 12% are black, and 7% are Asian or others.

For the next 10 years referenced, 2015-2025, the household formation will shift to minorities, as 40% of the share of household growth during that time period will be from Hispanics, while 24% will come from whites, and 18% will come from each blacks and Asians.

Home price market

In a case of reality-calling, more home sellers are reducing their prices in 2016 from their original listing price, especially in Texas, according to a report from online listing service Trulia.

Though home prices are rising, more reductions are being made from the original listing price. Reductions increased 0.52 percentage points over the past 12 months to 10.66% in September.

This could mean there is a softening in the market as buyers hit their ceiling of what they’re willing to pay. On the other hand, it could be a sign that sellers are over-pricing their homes. Or perhaps, it might be a little of both?

Whatever the reason, reductions increased in 70 out of the largest 100 metropolitan areas, especially in Texas. In fact, out of the top 10 metros, four are in the Lone Star State.

Here are the top 10 metros with the most increase in price reductions over the past year:

10. Oakland, California, increased, 4.4 percentage points from 2015’s 10% to this year’s 14.4%.

9. Oklahoma City, Oklahoma, increased 4.4 percentage points from 2015’s 10.5% to this year’s 14.9%.

8. Portland, Oregon, increased 4.7 percentage points from 2015’s 11.4% to this year’s 16.1%.

7. Denver, Colorado, increased 5.3 percentage points from 2015’s 13.5% to this year’s 18.9%.

6. San Jose, California, increased 5.3 percentage points from 2015’s 15.8% to this year’s 21.2%.

5. Fort Worth, Texas, increased 6.5 percentage points from 2015’s 5.7% to this year’s 12.2%.

4. Austin, Texas, increased 7.2 percen tage points from 2015’s 8.5% to this year’s 15.6%.

3. San Francisco, California, increased 7.8 percentage points from 2015’s 13.6% to this year’s 21.3%.

2. Houston, Texas, increased 8.6 percentage points from 2015’s 8.5% to this year’s 17%.

1. Dallas, Texas, increased 10.7 percentage points from 2015’s 3.1% to this year’s 13.8%.