By: Christel Silver Special to the Boca and Delray newspapers
The homeownership rate in 2016 was the lowest in 50 years, as renting has become the more frequent choice. But soaring rents in recent years have made buying a home much more affordable. Nationally, U.S. renters spend an average of 30 percent of their income on rent, versus just 15 percent of income on mortgage payments. High rents will make the Gen X and Millennials look at home ownership as an alternative this year.
Buyers are taking some of their stock gains and investing in real estate. Wages are expected to grow in big cities this year, but the share of homes affordable to someone earning the median income is not. This trend has prevented many first time home buyers over the past few years from becoming homeowners. This will even intensify as we are having a continued shortage in low- to moderate – priced homes. The affordability will get worse. Low inventory of affordable housing will lock many first time buyers out of homeownership.
By historic standards our interest rates are still low. The economic forecast looks at an estimate range from between 3.75 percent and 4.6 percent. As mortgage rates go up – the guidelines are also tightening. Since June 1, Fannie Mae requires lenders to check borrowers’ credit reports
again just days before closing. If the buyer took on a new loan or applied for a new credit card, the lender will have to reevaluate the borrower’s income/debt ratios. This could create a hardship for both parties involved, if the loan will now be denied at the last minute.
What are new homes looking like? Smaller, greener and with high technology, The National Association of Home Builders predicts the homes to be 10 percent smaller than the average new home 5 years ago. Millennial buyers also want a more eco-friendly home with energy-efficient windows and plumbing as well as in walking distance to shops and restaurants.
The real estate markets are becoming more global than ever, which is important to those professionals who are dealing with global clients. As most global buyers are paying cash – this creates an additional hurdle especially for first time buyers to compete with prices and loans.
Chief economist from Zillow, Svenja Gudell said, “If the expectation was that the market would transition smoothly from deep red hot recovery to normal–that certainly didn’t happen.” In many areas the prices are close or overcame the previous peak of 2006 and it looks like some Millennials, who did not consider buying a home in the past, are now beginning to enter the market.
Prices will still rise but at a slow rate. Zillow is forecasting the median home value to rise 3.2 percent from $192,500, between Nov. 2016 to Nov. 2017. As home prices continue to rise, more buyers will move to the suburbs to find affordable housing.
There is an uncertainty of what the new administration will decide. Rolling back the Dodd Frank Act? Privatizing Fannie Mae and Freddie Mac? Some investors are supportive and think this will keep the interest rates down – some housing economist fear it would further restrict who can afford to buy a home.
The government requires the lenders to prepare a good faith estimate of closing costs (GFE). The lenders were giving some time to get used to the new requirement, but now the lenders will face sanctions if their GFE’s are inaccurate. This is a positive development to protect the consumer.
Realtor.com predicts Millennials will settle in the Midwest and not at the beach areas. These areas are close to large universities, offer well-paying jobs and typically are more affordable than the coastal areas.
So where does this leave you? With prices and interest rates still rising, if you are thinking of buying a home – do not delay!
About Christel Silver
Christel Silver is a full time Broker/Owner of Silver International Realty servicing the East Coast of South Florida. In 1985 she was licensed in Maryland and Washington DC as a Realtor and later as a Certified Residential Appraiser and Associate Broker and has been in Florida since 2001. The National Association of Realtor’s (NAR) President appointed her (2010-2014) as the President’s Liaison to Germany, where she grew up and worked at the Justice Department for 17 years prior to coming to this country. The Germany Real Estate Organization (IVD) has an agreement with the NAR and she is an International member of this organization. Christel is a Certified International Property Specialist (CIPS), and a certified speaker teaching CIPS classes. Ms. Silver served the Florida Certified Residential Specialist (CRS) Chapter as President, as Regional Vice President helping Chapters to grow, and as a member of the Board of Directors for two years. She is currently an ambassador. Fifty percent of her business is in the International arena. For more information visit www.silverhouses.com.