Home Markets Housing: Stalled Or Billion Dollar Bust?

Housing: Stalled Or Billion Dollar Bust?

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Home ownership is at a modern low of 63%. This measures all families. Among millennials, it is even less: 34%. This second figure and the sheer number of young families is what has homebuilders and lots of real estate agents buzzing.

For the past few years the young generation has been having kids about as fast as Pampers can make diapers. With ever more bodies crammed together, tiny rental apartments don’t cut it anymore. So there is seemingly plenty of demand for real adult type homes.

But is this enough to translate into actual home buying? There are some serious people who uncovered a problem that could be a deal killer.

Warning Signs 

The housing market hasn’t exactly been looking good lately. Pending Home Sales fell in March and again in April. Altogether the index is down 3.3% from April 2016.

If you listen to the propaganda, the weakness is all about a lack of supply. There is more to it, however. It is all about money. Those who want a shinny new home with granite counters and stainless steel appliances don’t have the dough to make it happen.

Savings Anyone?

According to the always-reliable US government figures, the saving rate has recently been increasing and now stands at 6.0% its highest level since 2012. That makes for good headlines for CNN and USA Today. Unfortunately, this headline is tricky and deceptive. In other words, it’s truly fake news.

The truth is that for a very long time Americans have been saving less and less. But how much less required some independent searching and calculating.

Free Spirited Savers

After some effort, it became clear that those free spirited hippies back in the 1970’s had the right idea about saving. In fact, those dudes were stashing away upwards of 18% of their average income. Incomes back then were only about $14,000 so roundly $2350 went into the bank.

Advance to the digital age of 2017 and incomes have quadrupled to $56,000 but with a saving rate of 6%, the average family is putting away less than $3400. This doesn’t get you very far.

Translation

If you are a speculative homebuilder this should be scary news. The average home price in America these days stands at $256,000. A standard 20% down payment for a conventional 30-year mortgage is $51,200. Fortunately several new FHA programs permit down payments as low as 3% or about $7700.

Even at the 3% level, this means it takes at least two years average savings to meet even the lowest down payment in just the average neighborhood. But now comes the big surprise.

Most First Time Home Buyers Have Nada

The real estate website Apartments.com recently released a survey of millennials who visited their site.

What they found was not good news.

Almost 50% of people under 30 years old, had saved nothing at all, zip! Over 90% of survey takers had saved between zero and $8,000 toward a down payment.

This is a measure of historic behavior, what about the future?

When asked, how much of your current income are you now saving for use as a future down payment, 40% said zero while 40% were saving less the $600 per month.

Truth or Survey Error

Surveys and averages have one thing in common. They can both be very deceiving. Online consumer surveys can be especially deceptive because there is no way of assuring the quality of the sample. Some people take surveys to earn extra money for example. So it is reasonable to question the validity of the results.

Similar criticism can be thrown at averages especially when it comes to incomes.

Silicon Valley and Wall Street starting jobs are many times greater than average. But, there is a reason for that. The cost of housing is many times greater than average.

Real estate experts claim the problem with rapidly rising home prices is a shortage of supply. It is possible we are seeing the economic anomaly of a shortage of both supply and demand.