7.20.2016 Eye-Opening Housing Trends Worth Watching This Year

How’s this for irony: While the size of the average home is getting bigger, the size of the average rental apartment is getting smaller. These are two findings in The State of the Nation’s Housing 2016, a new report that details some eye-opening trends with regard to the U.S. housing market.

The report, which was recently released by the Harvard University Joint Center for Housing Studies, indicates that most people still want to achieve the American dream of owning a home — if they can afford it. However, a number of factors — including high levels of student loan debt, rising rental rates and a long-running hangover from the housing bust — continue to make it difficult for many Americans.

As a result, the nation’s homeownership rate has fallen to a half-century low of 63.5 percent. Declines in homeownership are especially pronounced among those in the prime first-time homebuying years of 25-29 and 30-34.

Reasons for Optimism

One of the trends in the report that presents reasons for optimism about the housing industry is the fact that more U.S. households are now forming. In 2015, 1.3 million new households were formed. This is considered to be a normal pace of household formation and is double the number of new households formed in 2013 (just 653,000).

Much of this growth is attributed to an increase in the number of households with adults over 65 years old. However, the report predicts that household formation by Millennials leaving their parents’ homes or roommate arrangements will push the number up to more than 2 million new households formed annually in the coming years.

The number of new homes built last year reached 1.1 million, up 10.8 percent from the lows of the recession and housing bust. That’s the good news — the bad news is that even with the double-digit increase, this number ranks among the worst in the past 50 years. The report notes that builders of single-family homes are focusing more on catering to profitable affluent buyers than increasing the total number of homes being built.

Another reason for housing optimism is the sky-high rents non-homeowners are paying in many parts of the country. The number of renters who are “severely” burdened by their rent payments — which is defined by the government as paying at least half of their income in rent — hit a new record of 11.4 million in 2014, up by 2.1 million since 2008. As rents rise, it’s likely that more tenants will consider buying a home and reaping the many benefits of homeownership.

So Much for Tiny Houses

As noted above, new houses just keep getting bigger and bigger. The median size of a newly built single family home is now 2,467 square feet, a new record. At the same time, multifamily units are getting smaller and smaller — shrinking to just 1,074 square feet from 1,200 square feet in 2007. The report attributes this primarily to a shift away from condos to more apartment units.

The report also notes that nominal home prices nationally have rebounded to within 6 percent of their pre-crash peak, according to estimates by CoreLogic. Due to this price increase, the number of homeowners who are underwater on their mortgage fell from 12.1 million to 4.3 million at the end of last year.

We’re interested in hearing from you. What are your observations with regard to housing trends in your market area? Send me an email at steven@lendtrade.com.

7.15.2016 Rising Levels of Tappable Home Equity Are a Positive Sign for Lenders

New data from Black Knight Financial Services points to some positive trends for the home equity lending market.

Black Knight’s most recent Mortgage Monitor Report came out on June 11, covering data through the end of May. According to the report, tappable home equity rose by $260 billion during the first quarter of this year — a six percent increase over the previous quarter.

Rising levels of tappable home equity are good news for home equity lenders because this means more equity is available for homeowners who want to pull it out of their homes to use for a wide variety of purposes. As we detailed in a previous article, the main reason homeowners tap home equity is to do home renovations. Other reasons are as varied as buying a vehicle, paying for educational expenses, paying off a mortgage and investing in other higher-yielding assets.

More Positive Statistics

The Mortgage Monitor Report included more good news on the home equity lending front. For example, 425,000 borrowers who had been underwater on their mortgages gained enough equity during the first quarter to get their heads above water. This brought the national negative equity rate down to 5.6%. In comparison, at the end of 2012, the national negative equity rate was a whopping 29%.

Approximately 2.8 million U.S. borrowers remain underwater on their mortgages. This figure is down 13 percent in the past year. However, the negative equity rate remains almost five times higher than it was in 2004, before the financial crisis hit.

More data from the Mortgage Monitor Report includes the following:

  • 38 million borrowers now have at least 20 percent equity in their homes. The average borrower now possesses $116,000 worth of home equity.
  • Housing prices nationally are within three percent of the June 2006 peak, while prices in 23 states have actually surpassed this peak.
  • Homeowners tapped $20 billion in equity via cash-out refinancings during the first quarter. Cash-out refis accounted for 42 percent of all refi activity during this time period.

Impact of Student Loan Debt

In addition, the Mortgage Monitor Report includes data on mortgage borrowers who also carry student loan debt. In 2014 (the most recent year for which statistics are available), 19 percent of all mortgage originations were for borrowers with student loan debt — a record high.

What’s more, 15 percent of all active mortgage holders now carry student loan debt, which represents an increase of 40 percent over the past decade. Non-current rates for mortgage borrowers carrying student loan debt are 38 percent higher than for borrowers who don’t have any student loan debt. And mortgage borrowers who are severely delinquent on their student loan payments are five times more likely to also be delinquent on their mortgage payments, according to the data.

The report also looked at recent trends in mortgage prepayment rates, which have historically been an early indicator of future refi activity. Prepayments on fixed-rate mortgages are down 4 percent year-over-year, but prepayments on ARMs are up 8 percent over the same time period. But with interest rates remaining low, the ARM share of mortgage originations has fallen to the lowest level in almost three years.

We’re interested in hearing from you. What are your observations with regard to home equity lending activity in your market area? Send me an email at steven@lendtrade.com.

7.5.2016 Should Retirees Use Home Equity to Meet Retirement Living Expenses?

One of the major demographic trends that will impact American society in the coming decades is the retirement of the baby boomer generation. Approximately 10,000 baby boomers now reach the traditional retirement age of 65 every day, according to the Pew Research Center.

One thing appears certain when it comes to retirement for these aging baby boomers: They will be facing a lot of uncertainty when it comes to their retirement finances. For example, most do not have access to traditional pension plans like their parents did, and many have not saved adequately for retirement.

Throw in uncertainty about the future solvency of Social Security, soaring healthcare costs and puny returns on traditional retiree savings vehicles like CDs and Treasuries and it all adds up to a huge financial question mark for many retiring baby boomers.

Aging in Place

A survey recently conducted by The American College of Financial Services sheds some interesting light on the attitudes of those who are nearing or currently in retirement. One particularly striking finding of The Home Equity and Retirement Income Planning Survey is that the vast majority (83 percent) of current and near-retirees say they want to stay put in their current home for as long as possible. Put another way, they want to “age in place.”

Interestingly, the older these retirees are, the greater their desire to stay in their home and the longer they expect to do so. Almost none of them said they desire to rent a home later in retirement.

Of course, desiring to remain in one’s current home for the long term and actually making it happen are two different things. To make this goal a reality, current and near-retirees will need to make a series of smart retirement income decisions in the years to come.

Using Home Equity for Retirement Income

One such decision that most baby boomers haven’t given much thought to is using their home equity as a source of retirement income. There are many ways retirees can tap into their home equity to help meet living expenses during retirement. These include home sharing, sale-leasebacks, reverse mortgages and HELOCs.

According to data compiled by the U.S. Census Bureau, home equity constitutes about a quarter (27 percent) of the average married couple’s retirement resources. However, just 44 percent of respondents to The Home Equity and Retirement Income Planning Survey said they had even thought about using home equity as a retirement income source. In addition, only 25 percent of respondents said they felt comfortable doing so.

One reason some current and near-retirees may be hesitant to use their home equity as a source of retirement income is because they want to pass their home on to their children mortgage-free after they die. Two out of 10 survey respondents said this was “extremely important” to them. But nearly half (45 percent) said it wasn’t important to them at all, so this doesn’t fully explain why a majority of respondents haven’t considered tapping their home equity for retirement income.

Education is Key

Given the strong desire of most current and near-retirees to age in place and the fact that many have not thought about how leveraging home equity can help them do this, there may be a big opportunity for increasing HELOC usage among this demographic by educating them about how tapping home equity can help them accomplish this goal.

In particular, baby boomers should have a comprehensive written retirement plan that includes the possible use of home equity as a source of retirement income. This will provide more flexibility to help them meet the financial challenges they’re sure to face in retirement.

We’re interested in hearing from you. What are your observations about the attitudes of current and near-retirees when it comes to tapping home equity to meet retirement living expenses? Send me an email at steven@lendtrade.com.