What to Expect in Housing Affordability

What to Expect in Housing Affordability | Windermere Blog | Windermere Real Estate

Posted in Economics 101 Videos and Market News by Matthew Gardner, Chief Economist, Windermere Real Estate

What keeps Windermere’s Chief Economist, Matthew Gardner, up at night? Housing affordability. As the U.S. Population moves towards both coasts and the Southwest, putting upward pressure on land prices and the value of homes, we will see a greater cost of living, which could directly impact the work force and economies in those areas. Gardner weighs in on how West Coast cities can improve housing affordability through policy and infrastructure changes.

 

The Trump effect. How will it impact the US economy and housing?

Posted in Market News by Matthew Gardner, Chief Economist, Windermere Real Estate 

The American people have spoken and they have elected Donald J. Trump as the 45th president of the United States. Change was clearly demanded, and change is what we will have.

The election was a shock for many, especially on the West Coast where we have not been overly affected by the long-term loss in US manufacturing or stagnant wage growth of the past decade. But the votes are in and a new era is ahead of us. So, what does this mean for the housing market?

First and foremost I would say that we should all take a deep breath. In a similar fashion to the UK’s “Brexit”, there will be a “whiplash” effect, as was seen in overnight trading across the globe. However, at least in the US, equity markets have calmed as they start to take a closer look at what a Trump presidency will mean.

On a macro level, I would start by stating that political rhetoric and hyperbole do not necessarily translate into policy. That is the most important message that I want to get across. I consider it highly unlikely that many of the statements regarding trade protectionism will actually go into effect. It will be very important for President Trump to tone down his platform on renegotiating trade agreements and imposing tariffs on China. I also deem it highly unlikely that a 1,000-mile wall will actually get built.

It is crucial that some of the more inflammatory statements that President-Elect Trump has made be toned down or markets will react negatively. However, what is of greater concern to me is that neither candidate really approached questions regarding housing with any granularity. There was little-to-no-discussion regarding housing finance reform, so I will be watching this topic very closely over the coming months.

As far as the housing market is concerned, it is really too early to make any definitive comment. That said, Trump ran on a platform of deregulation and this could actually bode well for real estate. It might allow banks the freedom to lend more, which in turn, could further energize the market as more buyers may qualify for home loans.

Concerns over rising interest rates may also be overstated. As history tells us, during times of uncertainty we tend to put more money into bonds. If this holds true, then we may see a longer-than-expected period of below-average rates. Today’s uptick in bond yields is likely just temporary.

Proposed infrastructure spending could boost employment and wages, which again, would be a positive for housing markets. Furthermore, easing land use regulations has the potential to begin addressing the problem of housing affordability across many of our nation’s housing markets – specifically on the West Coast.

Economies do not like uncertainty. In the near-term we may see a temporary lull in the US economy, as well as the housing market, as we analyze what a Trump presidency really means. But at the present time, I do not see any substantive cause for panic in the housing sector.

We are a resilient nation, and as long as we continue to have checks-and balances, I have confidence that we will endure any period of uncertainty and come out stronger.

 

 

 

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K.

Seattle Is Diverse as Ever

According to the FYI Guy and the geographic diversity index, Seattle ranked #3 with a score of 79.3, only behind Las Vegas and Colorado Springs. In fact, the Seattle Times states that “if you were to compare any two Seattleites at random, there’s about a 79 percent chance they were born in different areas of the country or the world.” Pretty crazy, right? In fact, only 38 percent of Seattle residents are native Washingtonians, which puts our city as the fourth lowest for percentage of people born in-state. New York might be a giant melting pot, but they top us with a significantly higher concentration of residents born in-state with 48 percent.rf

For those of us that think we get a lot of Californians moving up here, that just isn’t so. FYI Guy says that “even though it might seem as if everybody in Seattle is from California, we only rank fourth for the percentage of residents born in the West, but out-of-state. Las Vegas, Portland and Mesa, Ariz., are the top three, in that order.”

Maybe this has partially led to the nightmare that is Seattle traffic, maybe not. Either way, we’re basically the most interesting city in the U.S. now. Curious how geographically diverse your neighborhood is? This map has all of your answers.

Read more on the Seattle Times.

Market News from Matthew Gardner

Historically low inventory levels, how we got here, and what to expect in the coming year

The housing market is performing remarkably well, with the exception of incredibly low inventory levels in many areas throughout the country. Why is this happening? Windermere’s Chief Economist, Matthew Gardner, explains why and offers his predictions for what we can expect in the future.

A Peek into the Future

The International CES (Consumer Electronics Show) trade show took place last week in Las Vegas. If you thought last year’s best technology from CES was cool, this year brings a whole new meaning to “innovation.”

Samsung Family Hub Smart Refrigerator

Samsung’s latest smart device was unveiled at CES this year and it might be something you have to see to believe. This is the first third-party home appliance to feature Amazon Alexa. Alexa is the always-listening digital assistant first introduced in Amazon’s Echo device late last year. This fridge allows you to see what’s inside while you’re at the grocery store. The Family Hub Fridge features a pair of cameras on the inside that take pictures of the fridge’s contents every time you open and close the doors. You’ll be able to access those images on the Samsung app (iOS or Android). Picture yourself at the store, checking if you enough milk or juice. Your stress level just went down a notch. Read more here.

Hydrao Smart Shower

Let’s face it, we all waste water whether we mean to or not. Now there’s a way to find out how much and it doesn’t use any energy whatsoever. The white shower head, which wasdownload
introduced at CES, is equipped with built-in LED lights that can tell you about how much water you’ve used. The Bluetooth device connects to an iPhone or iPad app, which lets you set three alert intervals, such as five gallons, seven gallons and 10 gallons. It even lights up in different colors depending on the one you choose. It fits any shower head and has a tiny turbine inside that uses the water flowing through it that produces energy to power the lights and the Bluetooth connectivity. Talk about eco-friendly! You can set profiles for different users and track water usage in the app, in order to encourage family members to change their over-use habits.  Get the rest of the down low on Mashable.

SCiO food scanner

A French startup, DietSensor, has invented a device that tells us just how many carbs and calories are on our plates. That’s right ladies and gentlemen, thanks to the French, we can no longer enjoy food. It’s like when you go to a restaurant to have a good time and they put the calories on the menu and you feel shamed for eating. This pocket-sized device called SCiO uses near-infrared spectroscopy (the analysis of how molecules interact with light) to determine the chemical makeup of food and drink. Although dieting Americans will never leave this device out of sight, it was actually intended for those with diabetes or cardiovascular diseases. Check out the best of CES 2016 here.

Netflix

2000px-Netflix_logo.svgWe’ve all spent many Friday nights and long weekends cuddling up with our significant other: Netflix. The most popular streaming service stole the CES show and we aren’t surprised one bit. They rolled out their streaming service worldwide – 130 countries and 70 million homes. The day of this announcement their shares grew nine percent. Who runs the world? Netflix.

2016 Economic & Housing Forecast

The National Economic Forecast

1.The U.S. will continue to expand with real GDP growth of 2.3% in 2016.

Although a positive number, the forecasted rate of growth suggests that we will be modestly underperforming in 2016.  On a positive note, oil prices are likely to remain well below long-term averages, which puts more money into consumers’ pockets in terms of disposable incomes.  However, I believe that consumers are likely to continue to save rather than spend which will constrain growth.  That said, there is certainly no recession on the horizon – at least not yet – and a strong dollar will act as a bit of an anchor.

2.Employment will continue to expand but the rate of growth will slow. Look for an increase of 1.6% in 2016.

We are rapidly approaching full employment (generally considered to be when the unemployment rate drops below 5 percent).  As such, growth in employment has to be driven more by population growth rather than a return to employment. 2015 saw an average of around 210,000 jobs created per month and I believe that this is likely to slow to an average monthly gain of 190,000 new jobs.

3.The U.S. unemployment rate will continue to drop and end 2016 at 4.8%.

As mentioned above, we are heading toward full employment and, as such, the national unemployment rate cannot trend much lower.  That said, the less acknowledged U-6 rate (which includes those working part-time and those marginally attached to the workforce) will remain elevated at around 8%, signifying that there is still some slack in the economy and room for the rate to drop a little further.

4.Inflation will remain in check with the Consumer Price Index at 1.9%.

The Federal Reserve has begun the long-awaited tightening of monetary policy and we will likely see the Fed Funds Rate continue to move higher over the next two years. Inflation has yet to respond to the low unemployment rate, but it will.

The core rate of inflation should remain in check and the overall rate could stay below long-term averages as a function of stubbornly low energy costs. Should we see a shift in OPEC’s position relative to oil supply, the overall rate of inflation could rise more rapidly.  Oil prices, therefore, will remain in focus during 2016.

The National Housing Market Forecast

5.Mortgage rates will rise, but we will still end 2016 with the average 30-year fixed rate below 5%.

I am taking the Fed at its word when it says that monetary tightening in 2016 will be gradual and heavily data dependent. Accordingly, I expect only a modest uptick in long-term rates in 2016. Furthermore, as long as the Federal Reserve continues to reinvest the dividends that it is receiving from their bond holdings – which is highly likely – the yield on the key 10-year treasury will remain low and hold mortgage rates in check. This is only likely to change after the general election, therefore suggesting that rates will remain very attractive relative to their long-term averages.

6.Credit Quality – which had been remarkably stringent – will relax a little.

Access to credit, specifically mortgage instruments, has not been easy for many would-be homebuyers but that is set to change.  I believe that we will see some improvement, specifically for borrowers with “near-prime” credit. This will be of some assistance to first-time buyers; however, credit quality will still be higher than it needs to be.

7.Existing home sales will rise modestly to an annual rate of 5.53 million units with existing home prices up by 4.7%.

I anticipate that we will see some improvement in overall transactional velocities in 2016, but unfortunately, demand will still exceed supply. Prices will continue to rise, but at a more constrained pace than seen over the past few years. This will be a function of modestly rising interest rates as well as slightly improving levels of inventory. I anticipate that we will see more listings come online as more households return to positions of positive equity in their homes.

8.New home sales will jump and be one of the biggest stories for 2016.  Look for a 23% increase in sales and prices rising by 3.4%.

I believe that builders will start to build to the entry-level buyer, filling a huge void.  Additionally, I see the total number of new home starts increase quite dramatically in 2016 as banks start to ease lending and builders start to believe that the downward trend in homeownership has come to an end.  This will help to absorb some of the pent-up demand currently in the market.

9.Foreclosures will continue to trend down to “pre-bubble” averages.

Any story regarding foreclosures will be a non-story as the rate will continue to trend down toward historic averages. However, we will see the occasional uptick as banks work their way through their existing inventory of foreclosed homes. Move along.  There’s nothing to see here.

10.The Millennials will start to enter the market.

There are several substantial reasons to expect an increase in Millennial buyers. Firstly, early Millennials are getting older and starting to settle down, and even with modestly higher mortgage rates, rents are likely to continue to trend upward, and this will pull many into homeownership.

Secondly, more favorable mortgage insurance premiums, additional supply from downsizing boomers, and growing confidence in the housing market will lead to palpable growth in demand from this important – and substantial – demographic.

To conclude, it appears to me that 2016 will be a year of few surprises – at least until the general election! Because it is an election year, I do not expect to see any significant governmental moves that would have major impacts on the U.S. economy or the housing market.

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Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has over 25 years of professional experience both in the U.S. and U.K. 

 

 

 

King County Had Almost Half of 2015’s 30 Most Competitive Neighborhoods in America

We probably don’t need to tell you that 2015 was a crazy year in real estate, especially in our city. Bidding wars and listings lasting mere days on the market is something we’ve all grown accustomed to. But it turns out we’re not alone. Redfin recently came out with a list of the 30 most competitive neighborhoods from all across the U.S.. What’s the most mind blowing thing about this list? Of the 30 neighborhoods listed, 13 of them are in King County.

Top30Competitive-Neighborhoods-Table2

Seattle neighborhoods that made it onto this list are Roosevelt (4th), Phinney Ridge (9th), Stevens (11th), Greenwood (12th), Victory Heights (16th),Green Lake (17th), Madrona (20th), West Woodland (22nd). I mean, we all knew it was stormy out there, but this felt like a snow storm in Waikiki. It’s hard to say exactly what 2016 has in store, but our very own Chief Economist, Matthew Gardner, has a few ideas (such as expecting that housing in Seattle will continue to appreciate in value, but at a slightly lower rate than 2015).

Read more on Seattle Curbed.

The Windermere Foundation Wildfire Fund

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We are deeply concerned about the ongoing impact of wildfires throughout the Western United States this year. Eastern and Western Washington, Oregon, Idaho, California and Western Montana have been hit particularly hard by rampant wildfires this summer. According to the National Interagency Fire Center, 65 known fires are raging throughout the states we serve, displacing thousands of families.  We have heard that many of you wish to support the emergency relief for those who have lost their homes.

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The Windermere Foundation is now accepting donations to support the families that have been affected by wildfires. We will disburse donations to organizations that are serving local families based on the region you designate or by your billing zip code. One hundred percent of the funds designated to the Windermere Foundation Wildfire Fund will go to local organizations that are providing immediate assistance to those who are affected by the fires.
You can donate online at: https://store.windermere.com/content/FoundationWildfireFund Anyone can make a donation through this fund, so please feel free to share this email with your friends and family.

Our hearts go out to everyone who is affected by these terrible fires.

Thank you for your support!

Will millennials be ‘perma-renters’?

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This article originally appeared on Inman.com 

Several factors have kept this generation renting, but they won’t last forever

Takeaways:

  • Many believe that millennials will continue to be renters and not homeowners for various reasons.
  • The first of the millennials were not even in a position to consider buying until roughly 2008.
  • Credit has become tighter for older buyers; therefore, the recent rise in first-time buyers actually can be attributed to millennials.

There has been a lot of buzz in the news recently suggesting that millennials will forever be renters and not homeowners.

Reasons for this theory are plentiful and include amenities that apartments offer, flexibility when it comes to moving and changing jobs, and inability to afford a home given the crushing student debt load that many are carrying.

So will this be the renter generation? Let’s take a look at the data.

Millennial homeownership rates

Those who believe in the “perma-renter” theory point to U.S. Census Bureau statistics that state the homeownership rate for individuals under the age of 35 has dropped from a peak of 43.6 percent in 2004 to 34.6 percent today.

Now, I can’t deny that this is a precipitous drop, but let’s not get carried away quite yet. To start with, the first of the millennials (born in 1982) were not even in a position to consider buying until roughly 2008. That accounts for four years of college followed by two years of work.

We all know that 2008 was a terrible year to buy a home, so let’s bring it forward a little further to 2012. At that time, the ownership rate was roughly 36.7 percent. Since then, it has dropped to the current level of 34.6 percent. This drop is hardly a drastic one, but it is a drop all the same — so what happened?

Fewer urban options

As mentioned earlier, some suggest that millennials are bypassing homeownership because they prefer to remain mobile and are drawn to the bells and whistles that modern apartment living offers.

I would add to this that urban life simply appeals more to younger people than living in the suburbs; especially to those who are just starting their careers and don’t yet have a family.

But the options to buy in many cities are few and far between. Since the Great Recession, there has been a shortage of new, for-sale multifamily development, which limits the availability of urban housing for buyers.

At the same time, new apartment projects are being built at a frenetic pace. According to REIS, 240,000 apartment units are scheduled to open their doors by the end of this year, which represents a 43 percent increase compared with 2014, and well over 100,000 units above the 10-year trailing annual average.

The makeup of first-time buyers

Now let’s turn to the National Association of Realtors’ data on the percentage of existing sales to first-time homebuyers. As the chart below shows, between 2008 and mid-2010, there was a rapid runup as a result of the first-time homebuyer tax credit.

After that program expired, the percentage naturally dropped and trended lower through the end of 2013. However, it’s clear that the share of sales to first-time buyers has been trending higher for the past 17 months. But not all of these buyers are millennials, so we need to dig a little deeper for answers.

Source: National Association of Realtors

To better understand the makeup of first-time buyers, I started by looking at their age distribution. There is some great data from the Federal Reserve Bank of Atlanta that sheds light on this through analysis of mortgage data and demographic attributes.

As is shown in the table below, first-time buyers are actually not getting older. Although their numbers tumble after the crash of the housing market, the age distribution did not change drastically.

Now, if we believe that the decline was driven by the millennials, surely we would have seen first-time buyers getting older, but interestingly enough, they didn’t.

Source: Federal Reserve Bank of New York

To add to this, analysis prepared by the Center for Real Estate Analytics suggests that the gap between median credit scores of younger buyers and older buyers has closed.

In other words, credit has become tighter for older buyers; therefore, the recent rise in first-time buyers actually can be attributed to millennials.

So, if credit quality isn’t the issue holding back millennials, and rents continue to increase at a frenetic pace, it stands to reason that we will see more and more members of this generation becoming homeowners.

I hope I’ve demonstrated that these broad statements that people are making about millennials being perma-renters are unfounded.

Are many of them delaying their purchasing decisions? It appears so, but I expect them to move into homeownership in greater numbers as they start to marry, have families or simply find themselves paying too much in rent.

So where are these millennials going to buy? I’ll tackle that topic in an upcoming post.

content_MatthewGardner_colorMatthew Gardner is the chief economist for Windermere Real Estate. He is the former principal of Gardner Economics and has over 25 years of professional experience both in the U.S. and U.K. Follow him on Twitter @windermere.

 

Excellence In Innovation

innovator-awardsWindermere President OB Jacobi shared a message with Windermere brokers after the company’s recent nomination for the Inman Innovator Award for Most Innovative Real Estate Company.

Who among us doesn’t like being recognized for their hard work? Well, today is one of those days that we should all be proud to be a part of Windermere. As some of you may have heard, Windermere was just nominated for the annual Inman Innovator Award for Most Innovative Real Estate Company. For those who aren’t familiar with this award, it’s a pretty big deal within the real estate industry.

Every year, Inman searches for real estate companies, technology firms, individual innovators, successful agents, forward-thinking brokers, risk-takers, and entrepreneurs who are trying to change the industry. And this year, Windermere was one of the lucky few to be selected. Here is why Inman says Windermere was nominated:

“Windermere boasts more than 300 offices and 7,000 associates throughout the Western U.S. Windermere’s focus on technology took a 180-degree shift two years ago. The Seattle-based firm stopped trying to win the real estate search race. Instead, the company invested in back-end technology to support agent initiatives it openly shares with others. These moves, and others, seem to validate the role the broker must play in the new value chain.”

windermere-innovation

We’ll find out on August 6 at the Inman Connect conference if we actually win our category, but to be honest, this is one of those instances when merely being nominated is a huge honor. Not only does it reaffirm our technology objectives, but it shines a light on our brokers and the incredible things they’re doing in our offices and community every day.

So in a way, we’ve already won.