Housing Sales Increase but Questions Remain
By Burt Carey
Big bankers and mortgage lenders like Bank of America and Merrill Lynch say changing demographics are fueling a first-time home buyers market in 2015 that may be short-lived.
Real estate, it seems, is heating up – at least for value seekers. At the current rate, home sales are on pace to post
their best year since 2007, even with increased prices. Fueling the action are two important elements: Millennials have suddenly become home buyers, and Baby Boomers are downsizing and moving into retirement communities.
With a job market that is showing some strength and mortgage rates still relatively low, home ownership is on the rise. But the question is, for how long?
“What we’ve seen is that demand is off the charts in 2015 – and that is really boosting sales,” said Nela Richardson, chief economist at the brokerage Redfin. “Last year, buyers were dipping their toes in their water. Now, they’re diving in.”
That news comes on the heels of a report earlier this year by the Census Bureau that the number of renters throughout the country was at an all-time high at the end of 2014 and beginning of 2015, and the number of home owners had dipped to a 30-year low.
Bank of America Merrill Lynch isn’t buying into the glowing home ownership news. “New households will tend to rent and live in urban centers,” a June 23 report states. “There already is a dramatic decline in the homeownership rate, falling to 63.8% from 69.2% at the peak in 1Q05. The decline in the homeownership rate reflects a combination of foreclosures, a tight mortgage market and a severe economic recession. The drag from foreclosures has largely passed, although there is still some distressed inventory to work through. Restricted supply of mortgage credit and potential preference changes toward renting will continue to weigh on the homeownership rate.”
First-time buyers traditionally make up about 40 percent of the market, leading some to believe the 32 percent clip of first-time buyers in May is another indicator of a still-weak economy that’s not clicking on all of its cylinders. Another sign that the slumping economy hasn’t fully recovered is that the price of some 5.1 million homes – more than 10 percent of current mortgages – is less than what is owed.
The National Association of Realtors reported this month that sales of existing homes rose 5.1 percent in May to a seasonally adjusted 5.35 million homes, marking the third consecutive month home sales eclipsed 5 million homes. Even with the average home price reaching nearly $229,000, the 7.9 percent gain over the past 12 months is still more than $1,700 short of the market’s peak 10 years ago.
With the unemployment rate dipping to just 5.5 percent, some 3.1 million more people in the workforce could soon find themselves in a position to take advantage of low mortgage rates. Last week’s 30-year fixed rates were hovering around 4 percent a week ago, but they are rising from a low of about 3.5 percent less than a year ago.