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Housing Forecast 2018-2019: Declining New Demand

Take a step back from whatever data you normally look at. We’ll begin big picture with how many housing units are needed to accommodate changes in the United States. By housing units, I’m including single family dwellings, apartments and condos, as well as mobile . This is the key to a housing forecast, after which it makes sense to think about construction by different types, home prices and rental vacancy rates. We’ll keep this analysis at the national level; you can use the same logic to look at your own state or metropolitan area.

Dr. Bill Conerly; historical data from Census Bureau

Drivers of growth are population, changes in household size, and pent-up demand. Population growth is the biggest factor, so let’s start there. The surprising news is how soft population growth has been in recent years. Last year’s increase of 0.7 percent was the lowest percentage gain since 1937. For the 20 years prior to the last recession, growth averaged 1.2 percent. That may seem close to 0.7, but most housing is built for new demand, not as replacement. At 0.7 percent growth, new demand is just 58 percent of what it would be at 1.2 percent population growth. That tells us that we need to forget old averages, like housing starts of 1.5 million units a year. Let’s assume that next year is like last year. Population will grow by about 2.278 million people.

 

The second driver of housing demand is reduction of average size of households. When a couple split up and each get their own home, that increases demand for housing. (Recall that we include apartments when we use the word “housing.”) In the opposite direction, when a young adult gives up an apartment to move back home with the parents, demand for housing decreases. We can measure this by average size of a household. When average size (number of people) goes down, demand for housing is going up.

Despite the meme about young adults living in their parents’ basements, the average household size is now lower than before the recession. (In 2006, average was 2.57 people per household; most recently 2.53.) If average household size levels out, we’ll have about 0.881 million new households. But if the recent downward trend continues, we’ll have 1.183 million. That’s a pretty big swing, so household size is a large driver of housing demand.

The ability to live on one’s own, whether that means moving out from parents or from an ex-spouse, ties to employment and wage rates. As we noted in our article on the consumer spending forecast, job growth has been moderately slow, and wage inflation has not accelerated. I expect wage rates to improve next year, but not soon enough to change the trend in household size. So new demand for housing units will be (under these assumptions) 1.183 million units. For comparison purposes, so far this year we are on pace to build 1.287 million single family houses, apartment and condo units, and manufactured homes. Looks like we’re building too much, at least nationwide.

Will pent-up demand take up some of these homes? I look at how many vacant housing unitsthere are. Some vacancy is normal and even good. For non-rental housing (mostly single family homes, but also some condos), average vacancy is 1.4 percent. In the recession, vacancy hit 2.9 percent, but most recently was down to 1.5 percent. So supply is not tighter than normal despite talk of another housing bubble.

On the rental side (mostly apartments but some single family homes included), average is 7.0 percent but we are now at 7.3 percent (down from 11.1 percent in the recession). The underlying data are not terribly precise, but we’re certainly in the ballpark of normal vacancy. This looks to me like we do not have too much or too little inventory relative to demand. (Note that some real estate analysts use the word “inventory” to describe the number of houses listed with real estate agents. That is not at all a measure of inventory or supply.)

A few points makes the analysis a little more difficult. These are national data. While people are mobile, most housing is not. An excess of houses in Detroit or Cleveland cannot help people moving to Utah or Florida. We also don’t count demolitions or houses left permanently vacant very well, nor do we have a solid handle on vacation homes.

Nonetheless, I’m comfortable saying that we don’t need an increase in home construction, and would be just fine with a five percent reduction in housing starts next year and in 2019, which is my forecast.

Given that both owned and rental vacancy rates are about normal, do we need to change the mix of single family and multifamily construction? For most of the 1990s and 2000s about 80 percent of new construction were single family units; that figure is down to around 65 percent now. With millennials entering their child-rearing ages, we should see greater demand for suburban houses and less demand for urban apartments and condos, as I argued in my Multi-Family Real Estate Forecast: 2014-2020.

As for home pricing, if we’re currently building more houses than we need, then prices don’t need to firm up. I expect long-term interest rates to rise a little, which won’t help prices. Although there’s not much reason to expect a collapse, the recent six percent nationwide price increase seems a bit much given the demographics. I would think that three percent would be more realistic.

This national picture may not apply to your neighborhood at all. Real estate is local, so look at your community. Begin with population data. (Household data are harder to find at the local level.) Understand your own community by looking at historic data on housing units permittedper 100 new residents. Don’t be too swayed by local gossip. Instead, begin with demographics.

Orlando tenants feel pinch of rent spikes

Metro Orlando rents spiked by as much as 15 percent during a year-long period when rents nationally declined, making Central Florida less affordable than some California markets, including Sacramento, a new report shows.

The biggest jump in rental rates hit smaller units. An influx of new complexes filled with one-bedroom units pushed up the average rental on those apartments by 15 percent from a year ago and 5 percent from a month earlier, reaching an average $1,170, according to research released Tuesday by the analytics firm Zumper. Household income in Metro rose 1.2 percent during that period, the federal government reported.

Rosalinda Hernandez, 60, works as a bill collector and lives with her mother in the east Orlando area. She said she keeps a close watch on the apartment market and finds no property managers offering discounts.

“If you don’t have someone to live with, you can’t make it,” she said.

For landlords, the region has been identified as a standout for its rising rents.

Brian Alford, market economist for the CoStar Group, said Orlando’s annual rent growth is one of the best in the nation. The four-county area had fourth highest year-over-year rent gains among the nation’s top 54 metro areas, he said.

“Orlando has seen rent growth across both luxury and workforce housing, which is not the norm,” he said.

The boost in prices repositions the Metro Orlando area from a region considered affordable to one where renters have to search harder to find deals. Apartments with two bedrooms rose at about half the rate of one-bedroom rentals and averaged $1,290 in October.Universal Orlando announces two new hotels

While rents in Orange, Seminole, Osceola and Lake counties rose by double-digit amounts from a year earlier, rents nationally declined by about 1 percent.

The Orlando area’s rent hikes come even as thousands of new units are rolling onto the market with 4,500 new apartments added in October, according to ALN Apartment Data.

Within the region, Clermont appeared to have one of the lower occupancy rates with less than 90 percent of units filled while the Eustis/Leesburg and DeLand areas appeared to have a shortage of rentals with virtually no units available in September, ALN reported. In the University of Central Florida area, east Orlando and Oviedo had an occupancy rate of 94 percent.

Tenants renting houses in the Orlando region did not escape the spike with those rents rising more than 4 percent in September, which was higher than the increases of 3.5 percent nationally, according to Morningstar. Higher rents don’t seem to be scaring away tenants with vacancy rates of 4.8 percent in September, which was down slightly from a year earlier. Nationally, vacancy rates for rental houses were 5.9 percent.

Looking ahead, conditions are unlikely to improve for renters with an influx of prospective renters following hurricanes, said Ryan Coon, an author who writes on landlord issues..

“We’re continuing the see rents climb in Orlando, especially as the housing market remains tight post-Irma,” Coon said. “This trend bodes well for landlords looking to invest in the area.”

 

Mortgage Credit Risk Increased in Q2 2017

Housing Credit Insights Trends Through Q2 2017

The CoreLogic Housing Credit Index is a robust credit index that measures mortgage credit risk using six mortgage credit attributes. The HCI spans more than 15 years, covers all loan products in both the prime and subprime lending segments and includes all 50 states and the District of Columbia, permitting peak to trough business cycle comparisons across the U.S.

The CoreLogic Housing Credit Index (HCI) measures the variation in mortgage credit risk attributes and uses loan attributes from mortgage loan servicing data that are combined in a principal component analysis (PCA) model. PCA can be used to reduce a complex data set (e.g., mortgage loan characteristics) to a lower dimension to reveal properties that underlie the data set.

 

The HCI combines six mortgage credit risk attributes, including borrower credit score, loan-to-value (LTV) ratio, debt-to-income (DTI) ratio, documentation level (full documentation of a borrower’s economic conditions or incomplete levels of documentation, including no documentation), status of investor-owned (whether property is a non-owner-occupied investment or owner-occupied primary residence and second home), and property type (whether property is a condominium or co-op). It spans more than 15 years, covers all loan products in both the prime and subprime lending segments and includes all 50 states and the District of Columbia, permitting peak-to-peak and trough-to-trough business cycle comparisons across the U.S. The CoreLogic Loan-Level Market Analytics data include loan-level information, both current and historical, from servicers on active first-lien mortgages in the U.S. and the Non-Agency Residential Mortgage Backed Securities (RMBS) data include loan-level information from the securitizers. In addition, CoreLogic public records data for the origination share by loan type (conventional conforming, government, jumbo) were used to adjust the combined servicing and securities data to assure that it reflects primary market shares. These changes across different dimensions are reflected in the HCI. A rising HCI indicates increasing credit risk and a declining HCI indicates decreasing credit risk.

Orlando Eye developer submits plans for luxury lakefront homes

A well-known developer is moving forward with plans to put 13 multimillion-dollar on the last large developable land tract off the Butler Chain of Lakes.

Unicorp National Developments Inc. on Sept. 12 filed a preliminary subdivision plan in Orange County to build a 13-lot single-family development on 16.59 acres of The Hubbard Estate.

The development would be inside Arnold Palmer‘s Bay Hill community just west of the golf course on the shores of Lake Tibet in Orange County, Orlando Business Journal previously reported.

Unicorp has selected a couple of builders, including Jones Clayton Construction Inc., which provided renderings of the first speculation home that will be built in the neighborhood at 9000 Hubbard Place. A name for the subdivision has not been finalized yet.

Unicorp President Chuck Whittall previously told Orlando Business Journal the home prices would range from $5 million-$15 million.

The owners of The Hubbard Estate — the 2012 Hubbard Family Trust — authorized on June 13 Orlando-based Bio-Tech Consulting Inc. to make a conservation area determination on behalf of Unicorp, OBJ previously reported.

Jones Clayton Construction was not immediately available for comment.

Unicorp is the developer behind the I-Drive 360, Westside Shoppes, the Starflyer under construction on International Drive, and a host of other projects.

How Irma will affect real estate market

Like it did to everything else in Northeast Florida, Hurricane Irma dealt a significant impact to the residential real estate market.

But, like much else, it will come back, according to real estate professionals who’ve weathered the storms for years.

Bill Watson, founder and chairman of Watson Realty Corp., said the local effects of the hurricane began Sept. 8 for his 1,600 employees in 43 offices in North and Central Florida and South Georgia. That was two days before the storm made landfall in the Florida Keys.

“The first phase is when the hurricane warning comes. When the schools close, that affects your workforce,” he said.

Most Realtors are independent contractors and when schools are closed by an approaching storm, they take care of their children and families, Watson said.

After Irma, it was time to assess the damage on the personal and corporate levels and return to work. For many, that began about 12 hours after the storm left the area.

“We reopened Tuesday at noon. Two agents took clients to see houses and we also closed two contracts on Wednesday,” said Sherry Davidson, co-founder of Davidson Realty, which has offices in Jacksonville Beach and St. Augustine.

Linda Sherrer, CEO and president of Berkshire Hathaway Home Services Florida Network Realty, said five of her firm’s eight offices opened Tuesday, followed by the other three on Wednesday when power was restored to those locations.

The first step was to determine if properties had been damaged.

“Our agents started calling all of their listings and all of their buyers,” Sherrer said.

The post-storm phase brings its own challenges that involve title companies and lenders.

Unless a contract was executed, lenders won’t fund the loan until the home is inspected to determine whether the property was damaged. That will probably mean adding about a week or 10 days to the process, Davidson said.

Watson said damage to a property that’s under contract doesn’t necessarily void a sale, provided repairs can be completed within a set time.

“You have 10 days to determine whether the damage is minor and if so, the seller has to notify the buyer,” he said. “If the damage is minor, the seller has 30 days to repair it.”

If the damage is more than what’s considered minor — about 3 percent of the value — the buyer has the option to continue to closing or walk away from the contract, Watson said.

After the initial disruption, the market will return to its previous level, said Sherrer, who has been selling real estate in Northeast Florida through good weather and bad since 1979.

“We’ve got low inventory and low interest rates and demand is very strong. That points to a strong rebound,” she said.

The number of that were damaged will make the untouched properties increase in value.

“If you have an undamaged house that’s ready to move in, you’ll be able to bump up the price. There are still plenty of buyers, but not as much inventory,” Watson said.

He also said Hurricane Irma probably will change the market for the next several months.

“We’ll never get the September business back. And it probably won’t be really back in October, but November and December will be better than they should have been.”

Florida dealing with Hurricane Irma aftermath

Millions of Floridians are cleaning up the damage wreaked by Hurricane Irma as a Navy aircraft carrier arrives in the Keys, where up to 10,000 people may need to be evacuated.

USS Abraham Lincoln reached the Florida Keys on Monday and its helicopters are flying over the region to survey the damage.

The Navy has also dispatched two amphibious assault ships, the USS Iwo Jima and the USS New York, to help with recovery efforts.

Despite leaving a trail of devastation through Florida, Irma has now been downgraded to a tropical storm and is dumping rains across the South in Georgia, South Carolina, North Carolina, Alabama and Tennessee on Tuesday.

Rebuilding efforts in Florida could be hampered by temperatures of up to 90F in the coming days. This will be compounded by the fact that there is no air conditioning, as some 12.5million people in the southeast have been left without power.

The powerful hurricane made landfall Sunday morning in the Florida Keys as a category 4 storm and then made its way up the Gulf Coast – swamping downtown Miami with storm surge and blowing the roofs off .

As of Tuesday morning, officials in the upper Keys were allowing residents and business owners to return and assess damage.

So far, the storm is believed to have caused at least 11 deaths in the US – including two in the Florida Keys, which was under mandatory evacuation during the storm. A 51-year-old Florida man was electrocuted by a downed power line on Monday, while another man – Wilfredo Hernandez – was accidentally killed by a chainsaw in Hillsborough as he helped cut tree branches.

Three people were also killed in Georgia and one in South Carolina on Monday.

 

Home sales drop—again—and will continue ‘unless supply miraculously improves’

House . Real Estate Sign in Front of a House.

After a brief improvement in June, home sales continued their downward slide in July, with buyers signing fewer contracts to purchase existing .

An index of so-called pending home sales, which represent closings one to two months from now, fell 0.8 percent compared with June, according to the National Association of Realtors. That is the fourth monthly drop in the past five months. June’s reading was also revised lower. The index is now 1.3 percent below a year ago and has fallen on an annual basis in three of the past four months.

“Buyer traffic continues to be higher than a year ago, the typical listing has gone under contract within a month since April,” said Lawrence Yun, chief economist for the Realtors. “The reality, therefore, is that sales in coming months will not break out unless supply miraculously improves. This seems unlikely given the inadequate pace of housing starts in recent months and the lack of interest from real estate investors looking to sell.”

 The supply of homes for sale at the end of July came in at 2.11 million, 9 percent lower than a year ago. That has fallen year over year for 26 consecutive months.

The housing market remains stuck in a holding pattern with little signs of breaking through. The pace of new listings is not catching up with what’s being sold at an astonishingly fast pace,” Yun added.

Closed sales to buy existing homes fell more than expected in July, with Realtors citing the lack of supply as the primary reason. Prices are also a factor though. The median price of a home sold in July hit $258,300, the highest July price on record. Mortgage rates have been falling through the summer and are now sitting at 2017 lows, but they are still slightly higher than one year ago. Rates have been so low for so long that they provide little relief from the fast-rising prices.

California, which boasts the priciest and tightest in the nation, saw sales slip across the board in July. The number of homes for sale fell yet again and prices hit decade highs.

“The San Francisco Bay Area posted modest year-over-year gains in home sales this May and June, but a tight inventory and waning affordability have taken a toll, and July 2017 sales fell to the lowest level for a July in six years,” said Andrew LePage, research analyst at CoreLogic.

Pending home sales in the Northeast fell 0.3 percent for the month and were 2.4 percent above a year ago. In the Midwest, sales decreased 0.7 percent for the month and were 2.8 percent lower than July 2016. In the South, sales declined 1.7 percent from June and were 0.2 percent below last July. In the West, sales rose 0.6 percent for the month but were 4.0 percent below a year ago.

Yun noted that national sales numbers could weaken more than expected this fall, due to the disruption in the Houston housing market from Hurricane Harvey.

Orlando-area home sales down despite record job growth

http://www.orlandosentinel.com/business/94337272-132.html

Home prices and sales in the core Orlando market were down in July from the month before during what is usually the peak summer buying season.

The midpoint price for an area that includes mostly Orange and Seminole counties was $220,000 in July, down from $222,500 the prior month, according to a report released Tuesday by Regional Realtor Association.

More dramatic than the slight softening in prices was the 14 percent, month-over-month drop in sales to 3,347 for July. Typically sales boom as families relocate prior to the start of the school year.

The association cited a slim inventory of listings as the culprit for what has been a less-than-spectacular summer.

“Would-be first-time homebuyers are being kept on the sidelines by limited inventory and rising prices,” said Bruce Elliott, president of the association and broker associate with Regal R. E. Professionals LLC. “However, rising prices have slowed some of the investor activity, which could mean slightly less competition for at the lower end of the market.”

Compared with a year ago, Orlando’s median home price for July was $14,000 higher.

Orlando real estate Serina Marshall said millennials in particular face a challenge as wages stagnate and prices rise for a group of would-be buyers who are affected by student loan debts, too. Renters in that age bracket also deal with rent spikes and find themselves with few options at lease renewal time.

“Those prices are being jacked up a lot and people are being forced to move out of their apartments to find something more affordable,” said Marshall, an agent with Re/Max Town Centre.

What has not grown from a year ago is the pace of monthly sales, which held flat from a year earlier. The flat sales growth comes despite record job growth for Orlando, which averaged 150 new jobs daily during a 12-month period that ended in June, according to a review of federal jobs numbers.

The headwinds facing newly employed Central Floridians are home prices rising 6.8 percent during a year-long period in which wages rose about 1 percent, according to the federal housing department. Making ownership an even more distant dream, financing has become costlier. July buyers secured average interest rates of 4.01 percent, which was up about a half point from a year ago and up slightly from a month earlier.

Within the four counties that make up Metro Orlando, only Lake showed strong sales growth in July from July 2016. Sales there were up more than 12 percent, while sales in Orange and Osceola counties were largely flat and Seminole was down more than 8 percent.

U.S. Mortgage Rates Move Lower in Mid-July

According to Freddie Mac’s latest Primary Mortgage Market Survey, the average U.S. mortgage rate dropped in mid-July, after two straight weeks of increases.

Sean Becketti, chief economist at Freddie Mac, “Continued economic uncertainty and weak inflation data pushed rates lower this week. The 10-year Treasury yield fell 5 basis points this week. The 30-year mortgage rate moved with Treasury yields, dropping 7 basis points to 3.96 percent.”

Freddie Mac News Facts:

  • 15-year FRM this week averaged 3.23 percent with an average 0.5 point, down from last week when it averaged 3.29 percent. A year ago at this time, the 15-year FRM averaged 2.75 percent.
  • 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.21 percent this week with an average 0.5 point, down from last week when it averaged 3.28 percent. A year ago at this time, the 5-year ARM averaged 2.78 percent.

Here Are 2017’s Best and Worst Cities to Retire

We work hard during our careers to enjoy a comfortable retirement, and for many of us, that means settling down someplace where our nest eggs can go the furthest. But for some folks, finding an affordable place to retire is a matter of basic survival. More than 40% of households aged 56 to 64 have no retirement savings to show for, or so states the Economic Policy Institute. And even among older workers who are saving, confidence about retiring comfortably is declining. With that in mind, WalletHub recently did a review of the top cities to retire in this year, as well as the least desirable cities for retirees. Here’s what they came up with.

What makes for a happy retirement?

Though money isn’t everything when it comes to retirement, it’s a big factor to consider. Even if your tastes are modest, and you’re naturally not such a big spender, you’re bound to encounter certain expenses outside your control. Take healthcare, for example, which, according to recent projections, could cost the average healthy 65-year-old couple today over $400,000 in retirement. It therefore stands to reason that finding a city with a relatively low cost of living can be crucial to your overall happiness as a senior.

But while is one of the metrics WalletHub reviewed in its recent study, it’s not the only one. Factors such as recreation, senior services and population, hospital systems, and even climate were all considered in compiling this list.

So which cities offer the best overall quality of life for retirees? Among the 150 cities reviewed by WalletHub, here are the top 10:

Rank: Best Overall City
1 , FL
2 Tampa, FL
3 Miami, FL
4 Scottsdale, AZ
5 Atlanta, GA
6 Salt Lake City, UT
7 Honolulu, HI
8 Denver, CO
9 Austin, TX
10 Las Vegas, NV

DATA SOURCE: WALLETHUB.

Keep in mind that these 10 cities aren’t necessarily the most affordable. In fact, some, like Honolulu and Denver, scored relatively low on affordability alone. If a low cost of living is paramount in your mind, here are the top 10 cities you might consider as a retiree:

Rank: Most Affordable City
1 Laredo, TX
2 Brownsville, TX
3 St. Petersburg, FL
4 Montgomery, AL
5 San Antonio, TX
6 Memphis, TN
7 Tampa, FL
8 Orlando, FL
9 Lubbock, TX
10 Knoxville, TN

DATA SOURCE: WALLETHUB.

Of course, what you gain in affordability, you might forgo elsewhere. Take Laredo, Texas, the cheapest city for retirees. Though you might snag housing and groceries on the cheap, Laredo scored pretty low with regard to activities and amenities, and it came in nearly last on healthcare.

So which cities might you try to avoid as a senior? Here’s what the list of the 10 worst retiree states looks like:

Rank: Worst Overall City
1 Newark, NJ
2 Providence, RI
3 San Bernardino, CA
4 Worcester, MA
5 Detroit, MI
6 Fresno, CA
7 Stockton, CA
8 Modesto, CA
9 Fontana, CA
10 Rancho Cucamonga, CA

DATA SOURCE: WALLETHUB.

Most of the cities on this list scored relatively low in terms of affordability, and all landed at the bottom of the heap with regard to healthcare. Interestingly, none of the cities with the highest cost of living, including New York, New York; San Jose, California; and San Francisco, California, came even close to making the bottom 10 overall, which goes to show that money shouldn’t be the only factor to consider when determining where to live as a senior.

Finding the right place for your senior years

Clearly, the place you spend your days in retirement will have an impact on not just your budget but your everyday quality of life. If you’re not sure where to go once you stop working, try asking yourself the following questions:

  • How much do I want to spend on housing, transportation, and essentials? The more you fork over to cover your basic costs, the less cash you’ll have available for leisure. On the other hand, if you choose a city that offers much in the way of free entertainment, it might be worth the higher rent or mortgage. Furthermore, don’t just consider how much you want to spend but also what you can afford to spend. You might dream of retiring in Honolulu, but if your nest egg won’t hold up there, you’ll need to pick someplace with a lower cost of living.
  • How’s my health? Though having good access to healthcare is important for all retirees, if you have a known medical issue, you’ll need to pay even closer attention to how local hospitals and doctors are ranked. The last thing you want as a senior is to have to travel long distances to receive quality medical care.
  • How important is it for me to live near family? Your family might serve as a key social outlet and support system in retirement, so be sure to factor in proximity to children, siblings, and grandkids when deciding where to live. If you’re not willing to relocate to get closer (say, your family lives in an expensive city or someplace whose climate isn’t ideal), consider the cost of traveling from your city of choice to where your loved ones live, because you don’t want to grapple with perpetually pricey air fares when you’re stuck on a fixed income.

Choosing the right place to retire is crucial to your overall happiness. The more thought you put into where you retire, the more content you’re likely to be down the line.