Some aspects of the qualified mortgage rule continue to weigh on the mortgage market. According to NAR’s Survey of Mortgage Originators, despite overtures from the CFPB and modestly fewer issues, lenders tightened some restrictions in the 3rd quarter.
The share of respondents that had issues closing mortgage(s) due to some facet of the qualified mortgage rule (QM) eased from 66.7% in the 2nd quarter to 64.0% in 3rd quarter. Only 20% of the survey respondents indicated not having an issue.
However, the use of buffers increased in the 3rd quarter and was most common on the 3% cap and 43% back-end DTIs requirements with 29.2% and 33.3% of respondents using them, respectively. Some lenders have opted for buffers ahead of the QM parameters to prevent producing a rebuttable presumption or non-QM mortgage.
The CFPB has worked to ease lender concerns and made opportunities for lenders to refund excess fees in certain instances. The increase in concern by lenders could point internal process issues or increased demands from investors.
- If the homeownership rate is at a 20-year low then the renting rate must be at a 20-year high. One consequence of this trend is a significant rise in rental income across the country. The total rental income of everyone combined has more than tripled in the past seven years.
- The total rental income grew by a whopping 240 percent from 2007 to today. This gain arose from more renter households and rising rents. By contrast, the overall salaries and wages of everyone combined grew by 17 percent – due largely to more job creation and from some wage boost. The comparison clearly implies a much better time for landlords as opposed to wage earners.
- Looking at other income categories, unemployment insurance payments have sharply fallen. More jobs have also meant fewer people on the public dole. Farm income has been shaved by a third in the past year as crop prices have fallen. Alert: agricultural land prices could be vulnerable to a meaningful correction if farm income continues to fall.
- Most REALTORS® are not forking over higher rents. That’s because 87 percent of members are homeowners. Because real estate is their life, 46 percent of REALTORS® also own rental properties. Some REALTORS® specialize principally in property management, and among those who do they managed 49 properties on average in 2012. The three most commonly reported tasks of property managers were selecting tenants, taking tenant applications, and collecting rent.
- The continuing fall in the homeownership rate is not good for the country on many levels. However, for business people, they have to follow the money and the rental income is where the action is. An owner of a rental property, if history is a guide, can expect rents to have doubled in 20 years while mortgage payments (if financed at fixed rate) to have not risen at all.
With rising inventory and modest expectations of demand growth, REALTORS® responding to the October 2014 survey expected home prices to increase modestly in the next 12 months, according to data gathered from the October 2014 REALTORS® Confidence Index Survey: http://www.realtor.org/reports/realtors-confidence-index. Local conditions vary with expectations anchored on factors such as the level of inventory, the state of the local job market, and credit conditions.
The median expected price increase is about 3 percent. The map shows the median expected price change in the next 12 months based on the August – October 2014 surveys. No state had a median expected price growth above 5 percent. States with the most upbeat price expectations (orange) include California, Washington, North Dakota, Texas, Florida, Georgia, the District of Columbia, and Massachusetts–states with strong housing markets, job growth, and economies.
 The median expected price change is the value such that 50 percent of respondents expect prices to change above this value and 50 percent of respondents expect prices to change below this value. A median expected price change is computed for each state based on the respondents for that state. The graph shows the range of these state median expected price change. To increase sample size, the data is averaged from the last three survey months.
 In generating the median price expectation at the state level, we use data for the last three surveys to have close to 30 observations. Small states such as AK,ND, SD, MT, VT, WY, WV, DE, and the D.C. may have less than 30 observations.
- Earlier this week, we looked at the FHFA and Case-Shiller release focusing on national data trends. Today, we’ll dig a bit deeper to look at more local data at the regional, state, and city or MSA level.
- FHFA releases monthly data at the Census division level and quarterly state and metro area data. Case-Shiller offers data on 20-cities monthly. Both of these sources confirm the trend seen in NAR measures.
- At the regional level: home price gains from a year ago show less variation among regions now. While the Northeast has somewhat consistently lagged, price growth in the Midwest and South has approached and occasionally exceeded home price growth in the West. NAR reported price change of 4% to 7% in these areas from a year earlier in September and October. According to FHFA year over year prices in September 2014 rose 7.1 percent in the Pacific division which includes Hawaii, Alaska, Washington, Oregon, and California and 5.8 percent in the Mountain division which includes Montana, Idaho, Wyoming, Nevada, Utah, Colorado, Arizona, and New Mexico and by the same pace in the West South Central division which includes Arkansas, Louisiana, Oklahoma, and Texas.
- NAR data showed the smallest price growth from a year ago in the Northeast (4% or less in September and October), and FHFA similarly showed the smallest gains of 1.7 percent in the New England and Middle Atlantic Census divisions which combine to form the Northeast Census Region.
- State by state data showed that Western states top the list but states from the Midwest and South are not far behind. Nevada was the only state to see house prices rise in the double-digits, 10.4 percent, in the year ending September 30, 2014. Hawaii, California, North Dakota, Florida, and Texas round out the top six and each area saw prices rise by more than 7 percent in the last year. At the other end, only Connecticut saw a loss in home prices from one year ago. Four other states, Delaware, Vermont, Maryland, and Virginia each saw home price gains of less than 1 percent.
- Among cities, Case-Shiller reported the biggest year over year gains in Miami, the only city with a double-digit price increase from a year ago at 10.3 percent. Other top cities, Las Vegas, San Francisco, and Dallas, had home price increases of 7% year over year or higher. The smallest gains in Case Shiller’s cities were Cleveland at 0.8 percent, Washington at 2.1 percent and Charlotte at 2.6 percent.
- For a more detailed, interactive look at home prices in more than 150 metro areas, see NAR’s quarterly metro area median info graphic.
Black Friday for some shoppers is a holiday in itself. Deals are scouted out in advance with a schedule of where to shop based store openings, vehicles are arranged to hold on the merchandise, and child care is taken care of. It can start on Thanksgiving itself, in the wee hours of the morning on Friday, or on Small Business Saturday. For some it’s an annual ritual.
In 2013, 92 million shoppers took part in this annual ritual – a rise of 3 percent from 2012. The National Retail Federation expects that over the weekend (Thursday-Sunday) 140.1 million shoppers will hit stores and 95.5 million will shop on Black Friday itself.
When home buyers purchase a home, location matters, but convenience to shopping is important for 31 percent of recent home buyers according to data from the Profile of Home Buyers and Sellers report. By generations, convenience to shopping when buying a home is most important to Older Baby Boomers and the Silent Generation. Interestingly, these age groups are the least likely to go shopping Thanksgiving weekend based on the report from the National Retail Federation. Perhaps their proximity to shopping year round, means they do not see a need to. Shoppers aged 18 to 24 are the most likely to report planning on shopping Thanksgiving weekend.
For more information about this research, check out the 2014 NAR Profile of Home Buyers and Sellers at http://www.realtor.org/reports/highlights-from-the-2014-profile-of-home-buyers-and-sellers or the National Retail Federation report at https://nrf.com/sites/default/files/Thanksgiving%20Wknd%20Preview%202014_1.pdf.
- Last week NAR released median home price information that showed gains of 5.5 percent in October 2014 home prices compared to October 2013. This gain was slightly higher than the 5.3 percent seen in September and also higher than the 4.2 percent average price increase in the peak selling months of May to August. Still, this rate of price growth is in the normal 4 to 6 percent range, a great improvement over the double-digit price growth that prevailed in 2013.
- Today, both the FHFA and S&P/Case-Shiller released their housing price index data for September. Both data series showed continued but decelerating gains in home prices following the previous trend of NAR data back into a normal range of growth.
- S&P/Case-Shiller showed that home prices rose 4.8 percent year over year in September for the 10-city and national indexes while the 20-city index saw a gain of 4.9 percent from September 2013. The FHFA showed that prices increased by 4.3 percent in the same period.
- NAR reports the median price of all homes that have sold while FHFA and Case-Shiller report the results of a weighted repeat-sales index. Because home sales among higher priced properties have been growing more than among lower price tiers, the NAR median price sometimes increases by more than the weighted repeat sales index—which computes price change based on repeat sales of the same property.
- Other sources of difference in the data that may explain why Case-Shiller data is measuring a lower rate of increase than NAR is the data lag. Case Shiller uses public records data as the source of the index, and public records have a reporting lag. To deal with the lag, Case Shiller data is based on a 3 month moving average, so reported September prices include information from repeat transactions closed in July, August, and September. For this reason, changes in the NAR median price tend to lead Case Shiller changes.
- FHFA sources data primarily from Fannie and Freddie mortgages, transactions using prime conventional financing, and misses out on cash transactions as well as jumbo, subprime, and government backed transactions such as those using VA or FHA financing.
- Given recent trends in NAR data, we expect Case Shiller- and FHFA-measured price growth to stabilize at this more moderate rate of year over year price gains. To determine what this means for home prices in your market, contact a local expert who can give you the most current local MLS information and put these national headlines in context.
- There has been a boom in total production in the U.S. as the third quarter GDP grew at a 3.9 percent annualized rate. This growth is on top of the 4.6 percent expansion in the second quarter. Such a boom, if it can be sustained, could yield fast job gains and higher wages.
- Unfortunately, GDP growth rates have not been consistently high and early data suggest softening conditions in the fourth quarter. U.S. exports will not grow because many important foreign countries are either in recession or are about to fall into one. Fourth quarter GDP looks to rise by only 2 percent. Also way back in the first quarter, GDP had actually contracted by 2.1 percent. Economic growth has not been consistent.
- For the year as a whole in 2014, GDP will likely have grown by 2.2 percent: another subpar performance of the less-than-historical-average growth rate of 3 percent. It would mark nine consecutive years of below the historical average growth rate. But in 2015, GDP is forecasted pick up to 2.7 percent.
- As to the latest strong third quarter GDP numbers, business spending picked up notably with fixed investment rising at a 6.2 percent clip and exports solidly grew at 4.9 percent. Consumer spending just plodded along unexcitedly with 2.2 percent growth while housing investment of new home construction and broker commissions rose by 2.7 percent. Many government agencies do not like to leave money on the table so they found a way to spend taxpayers’ money before the fiscal year end in September. Federal government spending surged 9.9 percent.
- As can be seen in the chart below, GDP growth leads to employment growth. Recently, job growth rate hit 1.9 percent, bringing 2.6 million net new jobs to the economy.
- More jobs mean more spending capacity and higher future GDP. Higher GDP in turn means more job creation. The economy is essentially already in this happy virtuous cycle, though a faster spinning of the cycle would be welcomed.
- An economy grows best if there is stability through the rule of law. In the 1830s, France did not have that. Red or Black? France had to decide which way to go between a new revolution or the restoration of the monarchy. In a novel reflecting the times, the energetic principal character in The Red and Black faced a choice between joining the military to revive the Napoleonic spirit, or entering into the clergy to restore the Bourbon King Dynasty. Such a back and forth hesitating decision hinders economic growth. That is why neighboring Germany, with faster economic growth, was easily able to win the Prussian-Franco War several years later. It is also a lesson for every country on the importance of the rule of law, rather than a rule by military or rule by church or rule by any one individual.
The American Dream of homeownership is not only about a financial investment, it’s about a place to call home. The number one reason 24 percent of buyers buy a home is the desire to own a home of their own. Buying a home of one’s own can mean different things to different buyers, but given Thanksgiving is this week, it could mean the ability to host friends and family – proximity to friends and family is important to 43 percent of home buyers when considering neighborhood. While buyers will often compromise on price of home, size of home, and condition of home, distance to friends and family is low on the compromise list.
Buyers typically buy a home large enough to host family for the Thanksgiving holiday. The typical home purchased was a single-family detached home that was 1,870 square feet, with three bedrooms and two bathrooms and was built in 1993. Most buyers bought a home that previously owned, which they bought because it was a better price, better overall value and had more charm and character.
Given the recent temperature dips, to many homeowners the cost of heating is an added expense. When buyers chose the home they purchased, 36 percent placed a high importance on heating and cooling costs. Additionally, for 23 percent of buyers having energy efficient appliances was important to their home purchase – all the better for loading up with a turkey and all the fixings.
To other recent home buyers living close to entertainment and leisure activities is important – perhaps those buyers are enjoying a dinner out or treating themselves to a weekend blockbuster at the local cineplex.
For more information about this research, check out the 2014 NAR Profile of Home Buyers and Sellers at http://www.realtor.org/reports/highlights-from-the-2014-profile-of-home-buyers-and-sellers.
- NAR released a summary of existing home sales data showing that October’s existing home sales is the first year over year gain since October 2013. Additionally, this was the highest annual sales pace since September 2013. October’s sales rose 1.5% from September 2014 and now are up 2.5% from a year ago October 2013.
- The national median existing-home price for all housing types was $208,300 in October, up 5.5% percent from October 2013. October marks the 32nd successive year over year price gains.
- Regionally, all four regions showed growth in prices, and the Midwest had the biggest gain of 6.8% from last year. The West was the only region to have a decline in home sales at 3.4% from a year ago.
- October’s inventory figures increased by 5.2% from a year ago and it will take 5.1 months to move the current level of inventory. It takes approximately 63 days for a home to go from listing to a contract in the current housing market, up from last year when it took 54 days.
- Housing starts need to pick up to keep home price gains to a more normal level which is needed during a time of slow wage growth. Slower home price growth and low mortgage rates should help buyers come back to the housing market. Sales since June have been above the 5 million pace which points to a healthy housing market next year.
REALTORS®’ assessments of market conditions indicated flat market activity in October 2014 compared to September and a year ago. The REALTOR® Confidence Index-Current Conditions for single family homes and the Buyer Traffic Index registered near 50, a level that indicates an equal number of respondents with “strong” and “weak” outlook: (http://www.realtor.org/reports/realtors-confidence-index).
REALTORS® reported on market conditions. Properties stayed longer on the market, typically at two months. First-time home buyers continued to account for less than a third of the market. The percent of home purchases for investment purposes was steady compared to September but weaker than a year ago. The percent of sales of distressed properties continued to be on the downtrend.
REALTORS® were more confident about the outlook for the next six months, with the REALTOR® Confidence Index-Six-month Outlook for single family homes above 50. Respondents expect prices to increase in the coming 12 months at a modest pace, with the median expected price growth at 3 percent.
This long-form article was written by Jessica Lautz, Director of Member and Consumer Survey Research, for the Richard J Rosenthal Center for Real Estate Studies at REALTOR® University and is used here with their kind permission. It first appeared in the Journal of the Center of Real Estate Studies, Vol 2 No. 2.Introduction
Multi-generational housing is not a new concept, but a concept long forgotten while households made the shift towards nuclear families living in separate homes. Recently, data released by the U.S. Census Bureau, Pew Research, Generations United, and the National Association of REALTORS® suggests a trend of moving back to multi-generational households is now underway. While there are no doubt societal implications of this trend, this article will focus on the housing implications and will attempt to make sense of the data.Analysis
Understanding the definition of a multi-generational home is important to understanding the depth and breadth of the topic. Data collected by the U.S. Census Bureau defines multi-generational households as “a family household consisting of three or more generations. These include families with either a householder with both a parent and a child, a householder with both a child and grandchild, a householder with a grandchild and parent or a four-generation household…”. The National Association of REALTORS® (NAR) recently started collecting data on recent home buyers who purchased a multi-generational home and defined it as “a home that will house more than you and children under the age of 18 (such as adult siblings, adult children, and/or grandparents, etc.)”. Data collected from AARP defines a multi-generational household as “Householder, child, and grandchild; Householder with parent; Householder with parent and child; Householder with grandchild; Householder with parent; child, and grandchild; Householder with parent and grandchild. It does not include households comprised of parents and children, regardless of the age of the child.”
In 2010, the AARP Public Policy Institute issued a fact sheet titled Multigenerational Households Are Increasing, in which they conducted an analysis of the Current Population Survey. “In 2008, 6.2 million intergenerational households resided in the United States (5.3% of all households.) That number jumped to 7.1 million households by 2010 (6.1% of all households.) The increase in these two years represents a faster rate of growth than the previous eight years combined.” In September 2011, Generations United released the report Family Matters: Multigenerational Families in a Volatile Economy based on a survey conducted by Harris Interactive. The survey was based on 2,226 U.S. residents over the age of 18 and found that 136 of these individuals responded that they lived in a multi-generational household.  Among online survey panelists who lived in a multi-generational household, 66 percent reported that “the current economic climate was a factor in their family becoming a multi-generational household…”. Because the Generations United data is based on a survey panel, they cite figures from Pew Research that 51.4 million—nearly one in six—Americans of all ages live in a multi-generational home.
Data from Pew Research has been updated and is based on an analysis of U.S. Census Bureau data. It is weighted based on the American Community Surveys. In the Pew Research report, released in July 2014, a staggering “57 million Americans or 18.1% of the population of the United States, lived in a multi-generational family household in 2012, double the number who lived in such households in 1980.” The report, In Post-Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living, details the fast pace in which young adults ages 25 to 34 living in multi-generational homes have grown to be the largest segment living in these household types—even outpacing those who are 85 and older. Data released from the U.S. Census Bureau in 2013 reports that 4.6 percent of family households live in a multi-generational home.
Regardless of the report cited or definition used, this is a household type that is increasing in presence and is increasingly being discussed by real estate agents and brokers, home builders, and economists. The topic stirs discussion surrounding student loan debt, the perception of housing, immigration, even the American Dream of homeownership. Understanding the needs and potential growth of these types of homes is essential for real estate professionals.
In 2013, the National Association of REALTORS® first started collecting data on the share of home buyers who purchased a home for a multi-generational household in the annual Profile of Home Buyers and Sellers survey. Overall, 14 percent of recent buyers purchased a multi-generational home. Twenty-four percent of multi-generational buyers bought this type of home, because children over the age of 18 were moving back into the home; 24 percent purchased for cost savings; 20 percent purchased for health/caretaking of aging parents; and, 11 percent purchased to spend more time with aging parents. 
Source: National Association of REALTORS®, 2014 Home Buyer and Seller Generational Trends, March 2014.
The largest population of home buyers who purchased a multi-generational home was among Younger Boomers. Twenty-two percent of buyers who were born between 1955 and 1964 purchased a multi-generational home. The most commonly cited reason for this household type was due to children over the age of 18 moving back into the home, at 38 percent.
NAR data shows the typical home buyer who purchased a multi-generational household was 50 years old, and had a median household income of $85,800 in 2012. Buyers of multi-generational households are more ethnically diverse than buyers who do not buy multi-generational homes—75 percent of buyers of multi-generational homes were white/Caucasian compared to 88 percent of buyers who did not purchase a multi-generational home. The share of home buyers who purchased a multi-generational home varies significantly by sub-region. The buyers were typically buying a home that was 2,150 square feet and most (82 percent) were buying a single family home. Aside from the desire to own their own home, they were buying for a larger home, to accommodate family changes, and to be closer to friends and family.
Source: National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
The Pew Research data and the National Association of REALTOR® data suggest the boomerang population of Gen Y may be the key to multi-generational housing growth. Data indicate that these young adults want to be homeowners, but there may be other factors holding them back. According to data from Fannie Mae, 59 percent of young renters (defined as 18 to 39) believe owning a home makes more sense, but 73 percent of young renters also believe it would be difficult to get a mortgage today.  Additionally, 90 percent of young renters are likely to buy at some point, but the majority have “…insufficient assets to cover a 5% down payment plus closing costs on a typical starter home…”. It is promising that younger renters in Gen Y and Gen X do still want to own a home. It is not necessarily the “sharing generation” many the media outlets have led us to believe.
Given this research, one of the surprising results from the 2014 Home Buyer and Seller Generational Trends report is that the share of Gen Y buyers (born between 1980 and 1995) is just slightly higher than the other generations, at 31 percent.  The expectation is that Baby Boomers would still outweigh Gen Y as buyers given the average age from 1981 to 2013 for the typical first-time buyer is 31. If there were no economic constraints, Gen Y would soon overtake Baby Boomers as the largest home buying segment.
However, there are economic conditions at play. Restricted access to credit, slow wage growth, and lack of employment opportunities are holding many potential first-time buyers back, and living with other family members has become a comfortable alternative. For good reason. Those aged 65 and older have historically been at retirement age. According to the Census Bureau the percent of workers aged 65 and older who were employed increased to 16.2 percent in 2010 from 14.5 percent in 2005, while the share of 20 to 24 year olds who were employed decreased to 60.3 percent from 68 percent during the same time period. The annualized income growth from 2008 to 2012 has remained flat for those 25 to 34 and has increased just 0.3 percent for ages 35 to 44. During the same time period income growth for those aged 45 to 54 has risen 0.8 percent, 0.6 percent for those aged 55 to 64, and 3.2 percent for those 65 to 74.
While ages and employment grow for those outside of Gen Y and Gen X, the younger generations are disproportionate holders of the $1.12 trillion in student loan debt. Thirty-nine percent of the borrowers are less than 30, and 28 percent of the borrowers are aged 30 to 39. Eleven percent of student loans were 90 days delinquent in the second quarter of 2014, up from 6.3 percent in 2003. In comparison, the delinquency rate for all debt is 6.2 percent.
Those who are successful buyers have experienced stricter lending conditions and access to credit in recent years. As such, incomes of successful first-time buyers increased from $54,800 in 2002 to $67,400 in 2012. Higher income home buyers are also less likely to be delinquent on loans such as student loans and have the ability to pay them back faster than their lower-income peers.
Among recent successful home buyers, 12 percent cited saving for a home as the most difficult part of the home buying process, but this increases to 20 percent among Gen Y buyers and 15 percent among Gen X buyers. Of the 12 percent that cited difficulty saving, 43 percent attributed student loans as the expense that delayed saving for a downpayment. Among the 20 percent of Gen Y who cited saving for a home as the most difficult step, 56 percent cited student loan debt as the factor that made it more difficult to save. Among the 15 percent of Gen X who cited saving for a home was the most difficult step, 35 percent cited student loan debt as the factor that made it more difficult to save.
Even younger repeat buyers who already owned a home face some headwinds in purchasing another property. Gen Y and Gen X sellers who bought another property are more likely to state that they wanted to sell their home but could not sell when they wanted to and waited or were stalled because the home was worth less than the mortgage—17 percent among Gen Y and 19 percent among Gen X. This further adds to their financial problems. However, it is promising that sellers ultimately went on to buy a home instead of moving and renting.
Gen Y and Gen X buyers are often making the most financial sacrifices to buy a home of their own, but they are also the most optimistic that, when they are a successful home buyer, that their home is a good financial investment. More than half made financial sacrifices, such as cutting spending on luxury items or non-essential items, on entertainment, on clothes, cancelling vacation plans, and earning extra income through a second job.  When asked if the buyer thought the home was a good financial investment, 87 percent of Gen Y and 82 percent of Gen X buyers did feel their home was a good financial investment compared to 74 percent of the Silent Generation.Conclusion and Implications
Renters and those moving in with relatives ultimately want to buy a home. They recognize the long term financial value of owning, and the American Dream of homeownership is still very much alive. However, stagnant wage growth, coupled with a difficult job market, tightened lending standards, and student loan debt potential buyers took on to invest in their human capital, has made it difficult to purchase a home. For now, multi-generational housing is the retro trend that is more achievable for some American families.
For housing, this trend means there are implications for builders. The value of mother-in-law suites or rather “Gen Y college educated son/daughter suites” have increased among recent home buyers. In 2004 only two percent of recent home buyers found buying a home with an in-law suite very important. That doubled in 2013 to four percent of buyers valuing in-law suites as very important. While the share of buyers who find an in-law suite very important has stayed the same since 2007, at four percent, the dollar value has increased. Among buyers who bought a home without an in-law suite in 2007, they were willing to pay $1,900 more for a home with an in-law suite; in 2013 that rose 54 percent to $2,920.
According to a Pulte Group survey conducted in 2012, adult homeowners who are over the age of 35 and who have children ages 16 to 30 living with them or who have living parents, 14 percent have an adult son or daughter living with them; and, 15 percent have an aging parent living with them. Both sets of respondents expect the share with adult children residing at home and the share of aging parents living with them to double.
When respondents were asked how they will house a larger family, change seems more necessary among those with aging parents living with them or anticipating living with them—72 percent plan to renovate or move. That compares to 49 percent of homeowners who have an adult child living with them who are anticipating a move. “Respondents noted that the most important features to comfortably support an extended family include separate living spaces, such as a mother-in-law suite, additional bathrooms and larger great rooms.“ It is possible that homeowners see adult children living with them as a temporary situation, while those adult children save money or look for job opportunities. Aging parents may seem to be a longer term situation that requires a larger space and, in some instances, a more comfortable environment for aging relatives.
The topic of multi-generational housing is not as simple as having three generations who want to live under the same roof; nor is this is a new and unique aspiration. To some, this is not even a comprehensive definition. This is a housing situation that often transforms due to economic constraints and out of compassion for family. Aging parents may move into a home with their childrens’ families to be cared for and to spend time with them. Young adults may move back home — or perhaps never leave — due to high debt loads and low incomes. While young adults recognize the benefits of homeownership, some may have trouble reaching that goal quickly.
For home builders there is increased value placed on separate living spaces and dual master suites or in-law suites. For REALTORS® working with clients, helping buyers to see how a space can be transformed to accommodate growing families in one location can be helpful. For researchers and economists, it is important to look not only at the economic influences that lead households to forming multi-generational homes, but also to the future impact of Baby Boomers who may be financially pressured with both aging parents and young adult children. It will be important in coming years to see if Boomers are able to retire and move to retirement destinations or if they will stay put under one roof in non-traditional retirement settings to keep family in place. Multi-generational housing is a multi-faceted issue, and will continue to be an important one as long as these economic conditions persist.
 National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
 Harrell, Rodney, Enid Kassner, and Carlos Figueriredo, Multigenerational Households Are Increasing, AARP Public Policy Institute, April 2011. http://assets.aarp.org/rgcenter/ppi/econ-sec/fs221-housing.pdf
 Generations United, Family Matters: Multigenerational Families in a Volatile Economy, 2011. http://www.gu.org/LinkClick.aspx?fileticket=QWOTaluHxPk%3d&tabid=157&mid=606
 Fry, Richard, and Jeffery S. Passel, In Post Recession Era, Young Adults Drive Continuing Rise in Multi-Generational Living, Pew Research, July 2014. http://www.pewsocialtrends.org/2014/07/17/in-post-recession-era-young-adults-drive-continuing-rise-in-multi-generational-living/
National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
 National Association of REALTORS®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf
 National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013.
 Fannie Mae, National Housing Survey, What Younger Renters Want and the Financial Constraints They See, May 2014. http://fanniemae.com/resources/file/research/housingsurvey/pdf/nhsmay2014presentation.pdf
 Thompson,Derek, and Jordon Weissmann, The Cheapest Generation, Why Millennials Aren’t Buying Cars or Houses, and What it Means for the Economy, The Atlantic, August 22, 2012. http://www.theatlantic.com/magazine/archive/2012/09/the-cheapest-generation/309060/
 National Association of REALTORS®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf
 National Association of REALTORS®, Profile of Home Buyers and Sellers, Historical data 1981-2013.
 U.S. Bureau of Census, From Living Arrangements to Labor Force Participation, New Analysis Looks at State of the Nation’s 65-and-Older Population, June 2014. http://www.census.gov/newsroom/releases/archives/aging_population/cb14-124.html
 U.S. Bureau of Census, Table P10-Median Income. https://www.census.gov/hhes/www/income/data/historical/people/
 Federal Reserve Bank of New York, Household Debt and Credit Report, Second Quarter 2014. http://www.ny.frb.org/householdcredit/2014-q2/data/pdf/HHDC_2014Q2.pdf
 National Association of REALTORS®, 2013 Profile of Home Buyers and Sellers, November 2013. National Association of REALTORS®, 2003 Profile of Home Buyers and Sellers, 2003.
 National Association of REALTORS®, Home Buyer and Seller Generational Trends, March 2014. http://www.realtor.org/sites/default/files/reports/2014/2014-home-buyer-and-seller-generational-trends-report-full.pdf
 Ibid .
 National Association of REALTORS®, 2004 Profile of Buyers’ Home Feature Preferences, 2004.
 National Association of REALTORS®, 2013 Profile of Buyers’ Home Feature Preferences, 2013.
 National Association of REALTORS®, 2013 Profile of Buyers’ Home Feature Preferences, 2013. National Association of REALTORS®, 2007 Profile of Buyers’ Home Feature Preferences, 2007.
 PulteGroup, Multi-generational households to double in the future; families making plans for new space, PulteGroup Survey: Mom and Dad Anticipate Future Roommates, October 2012. http://www.pultegroupinc.com/files/doc_news/2012/Releaseaafa0f19-9717-4e5e-b688-fe90d91c27f2_1746385.pdf
- It has become easier to sell high-end expensive homes. The strongest growth in home sales in the latest data occurred at the very top of the price category.
- In October, home sales increased 16.2 percent from one year ago for those properties at $1 million and above. Overall home sales had increased by only 4.7 percent.
- The inventory change was also most noticeable on the upper end. The months’ supply of inventory fell by the largest magnitude for the expensive homes as it declined to 10.6 months’ supply from 12.1 a year earlier. By contrast, the months’ supply increased for all homes to 5.1 months from 4.9 a year earlier.
- The improving trends in the upper-end market do not mean REALTORS® should only chase this market. First, the million dollar home market makes up only 2.2 percent of total sales. Second, even though this specific market may be improving, it is still not easy. The months’ supply, as mentioned, is 10.6 for $1 million homes. But it is less than 6 months for homes priced under $500,000 and 7 months for homes priced between $500,000 and $1 million.
- The million dollar homes are moving better likely due to the huge gains in wealth in America from the stock market boom over the past 5 years. The ultra-loose monetary policy of bringing down interest rates has moved investor money into the stock market since there is virtually no yield in bank deposits or in bonds. But only about 10 percent of Americans are said to have a significant investment in the stock market. (Slightly more than half of Americans have some amount in the stock market through 401K and pension funds, but not a significant amount).
- Because many vacation home sales go to the people on the top, one may see improving conditions in the vacation home market as long as the stock market wealth holds up.
- It’s hard to take our eyes off The Lifestyle of the Rich and Famous even as we secretly may be wishing for their downfall, particularly the arrogant and stuck-up kind. But wealth should be viewed not solely in financial terms. Think of how much cultural wealth a person could accumulate by visiting museums or reading a fine book or of relationship wealth that comes from chatting with dear friends. These are activities, however, that take a long time to develop. That is, one can instantly buy a fancy watch from sudden wealth, but one cannot buy an improved vocabulary skills or true friendship no matter how much money is flashed around.
A lot has been written about the Millennial generation as related to housing. A look at the facts finds data in variance with the conclusion that the emerging generation will not be buying houses. However, they do appear to be at the lower bound of their historical purchasing history—possibly due to unnecessarily tight credit requirements coupled with difficult job markets.
Millennials have household formation rates significantly under that of the rest of the population, and home ownership rates well below that of other groups. They are now entering an age at which household formation and homeownership should be picking up. In terms of the housing market place, millenials currently have a purchase rate roughly comparable to their proportion of the population, but they are at the lower historical bound of purchasing experience for that age cohort. At this point a loosing of unnecessarily tight credit standards would help them enter the housing market.
Over an extended period of time the home buying patterns of people in the Millennial age group appear to have fluctuated—but not radically. The tendency of the media to write off the Millennial generation as home buyers seems premature: younger people have never bought houses to the degree that older people have. As noted by Krainer and McCarthy, credit standards have been too tight. Various surveys indicate a preference for home ownership by Millennials. Clearly there are issues associated with college loans, the economy, job availability, and tight credit standards. However, the data do not support the idea that in the long run Millennials will be permanent apartment renters.
 John Krainer and Erin McCarthy have also noted that tight mortgage credit standards have been an obstacle to a pickup in housing demand: “Housing Market Headwinds,” FRBSF Economic Letter, November 3, 2014.
According to the latest REALTORS® Confidence Index, current conditions across property types essentially moved sideways in October–a slight decline for the single family market, and a slight increase for townhouses and condos. Data were from the October REALTORS® Confidence Index Survey: http://www.realtor.org/reports/realtors-confidence-index. 
REALTORS® continued to report difficulties in obtaining a mortgage under tight underwriting standards and the decreased supply of “affordable” homes. Respondents also reported that the effective increase in mortgage insurance premium payments have made a home purchase less affordable and closing costs harder to cover. Financing for condominiums remained difficult to obtain due to FHA financing eligibility regulations for condominiums relating to occupancy guidelines.
 An index of 50 delineates “moderate” conditions and indicates a balance of respondents having “weak”(index=0) and “strong” (index=100) expectations or all respondents having moderate (=50) expectations. The index is calculated as a weighted average using the share of respondents for each index as weights. The index is not adjusted for seasonality effects.
- Lower gasoline prices are contributing to low overall consumer price inflation. Low inflation in turn means interest rates can continue to remain at rock bottom rates. However, one weighty component in consumer prices shows an accelerating trend: namely, rents are rising at the highest pace in 7 years.
- Gasoline prices have fallen by over 10 percent since summer and there could be an even further drop based on the trends in the price of crude oil. It could just as easily reverse course and suddenly rise since energy prices are always subject to unexpected global events.
- Partly because of lower energy prices, the overall consumer price inflation is minimal and ideal, rising by only 1.7 percent over the past 12 months to October. This should be to the liking of the Federal Reserve, which likes to see inflation rate at slightly under 2 percent.
- Apartment rents are higher by 3.3 percent, the fastest pace in nearly 6 years. Given the low and still-falling apartment vacancy rates, rents could rise even further. This trend is automatically pushing up homeowner equivalency rent as well, which is now up 2.7 percent, the fastest pace in nearly 7 years. With home building activity still well below normal, the housing market could feel shortage pressures, which means an even further rise in rents. Since the housing component is the biggest weight to the consumer price inflation, the inflation in 2015 and beyond could be a bit higher than what the policymakers are currently assuming. That means interest rates may be forced up by the Fed little sooner than planned.
- Moreover, as every grocer would know, food prices are trending higher at 3 percent (with the price of meats up 13 percent).
- Expect inflation to reach 3 percent sometime in 2015 and thereby force mortgage rates up to around 5 percent from current 4 percent.
- Where there is high inflation banks will have to charge higher interest rates to compensate for the loss in the purchasing power of money. That is why the high 1970s-style inflation led to high mortgage rates. Later, due to government price control, lenders could not raise interest rates and many banks scrambled to come up with innovative ideas of enticing new customer deposits. The offers of free toasters and free Tupperware were the result. Many lenders still went bankrupt when the interest on money lent out was below the interest rate on deposits. Stagflation and bad economic times were the visible results of that time.
- The median age of members has been rising since data collection started in 1978.
- In 1978 the median age of NAR members was 42, today the median has risen to 56 years of age.
- In 1978 the share of members who were under 30 was 15 percent and remained in the double digits until 1987. In 2014, only three percent of members were under 30 years of age.
- For more information on the Member Profile, go to: http://www.realtor.org/reports/member-profile
- Seasonally adjusted applications to purchase homes jumped 11.7% for the week ending November 14th, a solid improvement in a series of gains following a weak trend in late October. The purchase applications index is 6.1% lower than the same time in 2013. Credit overlays and high cash shares continue to dog purchase application volumes, but regulatory clarity in the form of a final QM and QRM rules as well as overatures by the FHA and FHFA to improve clarity on lender risks should help to ameliorate some of the constriction.
- The average rate for a conforming 30-year fixed rate mortgage as reported by the Mortgage Bankers Association eased to 4.18%, down slightly from last week. The average rate a year ago this week was 4.46%.
- The share of both FHA and VA loans increased in this week’s survey.
- Equally strong were single family housing starts and permits for construction which reached their highest levels since last October. Starts gained 4.2% on a monthly basis for the second consecutive month and were up 15.4% compared to a year earlier while permits rose 2.4% on a year-over-year basis.
- Low inventories and an inventory miss-match, particularly at the entry level portion of the market, have hampered sales, particularly in non-judicial states.
- Improved construction spending will help to alleviate inventory constraints as well as fuel job creation and buyer confidence as options improve.
- This week’s readings suggest a solid improvement in mortgage applications and dovetails with the solid foot traffic and pending home sales figures from the last two months and point to a solid fall and winter market. Additional construction will help to ameliorate tight inventories and fuel home sales, but without dampening price growth; construction remains low on a historical basis. Consumers will benefit from employment growth and better options in the market.
- Home builders are expressing optimism for better days ahead. They are partly right. But their recent roaring confidence could be a bit misleading.
- The home builder confidence index reached its second highest monthly reading in nine years. The latest index of 58 in October was an improvement from 54 in the prior month. Such a high reading should be implying all is going well in the home building industry. That is not the case.
- Nearly all home builders work on single-family homes and not apartments. And the actual construction of single-family homes is still pretty much down and out. The recent months’ construction pace of around 650,000 is only about half the normal rate. Multifamily construction, by contrast, is essentially back to normal. This trend reflects the strong rise of a 4 million net new rental population and one million fewer homeowners in the population since 2010.
- It is unclear, but one possible explanation for the divergence between home builder confidence and low housing starts could be due to the fact that many small mom-and-pop builders have gone out of business and therefore are not expressing their view in the surveys. Extreme difficulties of obtaining construction loans have hinder smaller-sized local builders. The larger regional and national home builders (like D.R. Horton, Pulte, and Toll Brothers for example) do not need construction loans and tap capital via Wall Street. Therefore the large builders have been gaining market share and they are the ones who would be feeling much more confident about the industry.
- Directionally at least, housing starts are likely to increase in the upcoming months because of improvements in the home builder confidence. The total housing starts in 2015 are likely to be 1.25 million, up from 1.0 million this year. Single-family starts are likely to get bumped to 840,000 in 2015 from 640,000 or so this year. The increase in new home construction will help relieve housing inventory shortages in many markets ahead of the spring buying season.
- The U.S. trade deficit will widen in the upcoming months and thereby trigger a slowdown in the U.S. economy. Why? Japan has officially fallen into a recession with two straight quarters of economic contraction. Eurozone economies are barely hovering at zero growth. China has markedly slowed down, no longer roaring at a 10 percent clip. The Russian economy is falling apart because of economic sanctions and from falling oil prices. Brazil is fighting hard not to contract. All of this adds up such that foreign economies will have less capacity to buy American products. U.S. exports will no longer rise while American consumers will continue to buy imported goods.
- The U.S. economy did show some sparks with the GDP expanding 4.6 percent and 3.5 percent in the past two quarters on an annualized basis. Above 3 percent is desirable and good and below 3 percent is subpar. However, based on softening exports, GDP in the final quarter of the year may only be 2 percent. Such a slowdown means job gains will also slow.
- U.S. exports to foreign countries already started to contract in September, falling 1.5 percent. Meanwhile U.S. imports were about the same. Therefore, the trade deficit increased. This type of trend will further continue for the foreseeable future because foreigners will have less capacity to spend. Moreover, the U.S. dollar has strengthened, which makes U.S. products more expensive and foreign products cheaper. In a pronounced case of Russia, its currency has tumbled by more than 30 percent against the dollar. Therefore, there will be less Russian buyers of Miami properties in the upcoming year.
- Forecast? The U.S GDP growth in the fourth quarter will be sluggish at around 2 percent. If subpar growth continues into early next year than the pace of job gains will surely slow. Job growth is currently projected at 2.5 million for 2015. But if exports struggle to expand and the economy grows slowly at 2 percent throughout next year then the job gains may slow to only 1.5 million.
- Russia’s economy is potentially facing shambles because of sanctions. This weakening will have some reverberations across the global economy. Finland for one, an innocent bystander, will suffer a deep recession as Russian tourists stop coming. But the sanctions on Russia will not be lifted as long as it misbehaves, like invading a foreign country. Back during the U.S. Civil War, European countries wanted to continue the cotton trade with the Southern states despite the sanctions placed by the North. To reaffirm the sanctions and prevent violations for good, Abraham Lincoln came out with Emancipation Proclamation, something he had pondered for several years. Lincoln knew with his announcement there was no way Britain and France, who both had abolished slavery several years earlier, could now violate the sanctions. The Southern economy subsequently collapsed. Moral reasons will always triumph over economic reasons.
- Consumers are becoming ever more confident in the economy. Continuing job gains, lower gasoline prices, and rising home values are likely contributing to the sentiment. Interesting though, that REALTORS® were feeling less optimistic in the past month.
- The latest consumer confidence index reached a 7-year high mark. In October, the index was 94.5. The long term average is near 100. The overall improvement in the economy is no doubt contributing to better consumer feelings. This consumer confidence index is about the whole economy and not specifically related to home buying. But consumers need to be confident of the general economy in order even consider making a major expenditure such as buying a home. Therefore the rising consumer confidence portends better for the housing market outlook.
- REALTORS® in September expressed an opposite feeling with the index falling to its lowest mark in 2 ½ years. And the assessment of the condominium market has been consistently lower than that of the single family properties.
- Pending contracts to buy a home have been rising in recent months (though still down from one year ago). So unless REALTORS® are expressing their sentiment based on intangible factors, like changes in the number of client appointments or lower foot traffic at open houses, the weakening confidence by REALTORS® seems uncalled for.
- The confidence data cannot decipher if high-producing REALTORS® are just as pessimistic as the general REALTOR® population. We know that 20 percent of REALTORS® earn more than a six figure income while 30 percent of REALTORS® earn less than $15,000 a year (with the rest earning in-between). It is presumed that confidence and earning are correlated.
- The U.S. Capitol dome is currently undergoing a major reconstruction. This dome is indeed a truly remarkable engineering feat and a thing of beauty. But one of the best known domes in the world covers a church in Florence, Italy designed by an architect Brunelleschi over 500 years ago. He and his crew, many of them orphans and labeled as “men without names,” built the dome without construction cranes or other modern equipment. He built it to honor God and, possibly and more importantly, to raise hope of what people are capable of achieving. There is nothing like confidence to get things done.