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May 2017 – Page 2 – Elev8 Group
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New home sizes continue to shrink

Americans seem to be more interested in smaller homes at the start of 2017 as the median and average square footage of new builds continues to decrease, according to a note from Robert Dietz for the National Association of Home Builders.

During the housing recovery, builders focused on higher end homes, however that is now beginning to change. The entry-level market continues to expand, including an increasing interest in townhomes, and new home sizes continue to shrink.

Median single-family square floor area decreased to 2,389 square feet, according to first-quarter data from the Census Quarterly Starts and Completions by Purpose and Design and NAHB analysis. This is down from 2,440 square feet last quarter and 2,465 square feet last year.

Similarly, the average square footage also decreased slightly from 2,652 square feet in the fourth quarter and 2,658 square feet last year to 2,628 square feet.

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new builds

(Source: NAHB)

But while the trend is decreasing home sizes, the chart above shows square footage is still relatively high. Since cycle lows, the average size of new single-family homes is 10% higher and the median size is 14% higher.

NAHB points out that while home sizes trend lower before recessions, the current decrease is due to builders bringing much needed entry-level homes to the market.

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Goldman Sachs: No bubble for U.S. home prices. But what about other developed nations?

Home prices in the U.S. are rising to new levels, even surpassing pre-crisis levels in some metros, but home prices in the U.S. are relatively low compared to other developed nations.

Over the past few years in the U.S., home prices peaked in July 2006, troughed in February 2012 and have since returned to pre-crisis levels once again. However, this wasn’t the case for other developed nations. Other G10 economies never saw a downturn, and have continued increasing.

The Group of Ten is made up of eleven industrial countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States) which consult and co-operate on economic, monetary and financial matters.

Now, some are concerned about broader consequences if the real estate markets go south, according to a report from Goldman Sachs. The report explains there are no imminent problems in G10 markets, but current imbalances could worsen cyclical weakness later.

This chart shows U.S. home prices are far below other G10 markets. In 2006, home prices in the U.S. stood at about the same level as the other countries. However as the recession hit in the U.S., home prices in other G10 nations continued to grow.

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G10

(Source: Bank for International Settlements, Goldman Sachs Global Investment Research)

And in fact, home prices in many G10 markets are significantly overvalued. Goldman Sachs compared the ratio of home prices to rent, the ratio of home prices to household income and real home prices, home prices deflated by a consumer price index.

This chart shows New Zealand is the most overvalued G10 nation. For comparison, the in the U.S. in 2006 the price-to-income ratio and price-to-rent ratios were about 15% and 30% above their long-run averages, respectively.

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G10

(Source: OECD, Goldman Sachs Global Investment Research)

Goldman Sachs calculated the underlying demographic trend in household formation by dividing the change in the resident population by the average number of persons per household. It then compared the five-year average of this estimate with the five-year average of housing starts. The company could then determine whether building activity is high due to faster population growth.

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G10

(Source: Haver Analytics, Goldman Sachs Global Investment Research)

It might come as no surprise that the U.S. is underperforming when it comes to new construction. Other countries, such as Australia, are overbuilding.

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G10

(Source: Haver Analytics, Goldman Sachs Global Investment Research)

But despite falling significantly below other G10 nations in home price categories, the debt-to-income ratio in the U.S. falls higher. The U.S. comes in fourth when it comes to mortgage debt, but remains significantly below peak values.

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G10

(Source: Haver Analytics)

Due to rising home prices and high credit growth, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35% to 40%, according to the report. Canada follows closely behind with a probability of about 30%. For the remaining countries, the model-implied probability of a housing bust is around 20-25%.

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G10

(Source: Goldman Sachs Global Investment Research)

The Goldman Sachs note was produced by Senior Economist Zach Pandl and Nicholas Fawcett, executive director in the Global Investment Research division.

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Need a mortgage in California? Realtors say you better earn this much money

While it’s only a small improvement, California still managed to record an increase in home affordability, according to the latest report from the California Association of Realtors.

However, a look at the different counties across the states shows that geographical location makes a difference, as seen in the chart at the end of the article.

So what percentage of income should be available to get a mortgage? Well, that depends on where the house is located

Overall, the latest Traditional Housing Affordability Index from CAR posted that the percentage of homebuyers who could afford to purchase a median-priced, existing single-family home in California in first-quarter 2017 inched up to 32%. Although this is up from 31% in the fourth quarter of 2016, it is down from 34% in the first quarter a year ago.

CAR noted that this is the 16th consecutive quarter that the index has been below 40% and is near the mid-2008 low level of 29%.

For perspective, California’s housing affordability index hit a peak of 56% in the fourth quarter of 2012.

The HAI measures the percentage of all households that can afford to purchase a median-priced, single-family home in California. CAR also reports affordability indices for regions and select counties within the state.

For the whole state, homebuyers needed to earn a minimum annual income of $102,050 to responsibly qualify for the purchase of a $496,620 statewide median-priced, existing single-family home in the first quarter of 2017. The monthly payment, including taxes and insurance on a 30-year, fixed-rate loan, would be $2,550, assuming a 20% down payment and an effective composite interest rate of 4.36%.

The minimum income needed to qualify for a loan on the median-priced home is calculated using the rule that the monthly payment for principal, interest, taxes and insurance can be no more than 30% of a household’s income.

The chart below gives a breakdown of individual counties and regions.

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house

(Source: CAR) 

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Here are the best places for college grads to live

The class of 2017 is preparing to graduate and will soon be deciding, if they haven’t already, where to put down roots.

A new study from Trulia shows 31% of recent college grads relocated in the past year, compared with 11% of adults overall.

The struggle, according to the report, is to find an area that is affordable, but also has a booming job market.

This interactive chart shows where affordability meets jobs:

In the report, Trulia defines college graduates as those that are 22 to 27 years old, and have a bachelor’s degree only.

Trulia researched the most common jobs for recent college grads, then researched where those jobs are most available.

When it comes to finding good jobs, these are the top five metros to find grad-friendly jobs, and the percent of postings in occupations with a high share of recent graduates:

5. Bridgeport-Stamford-Norwalk, Connecticut – 23.3%

4. Boston-Cambridge-Newton Massachusetts-New Hampshire – 23.3%

3. Seattle-Tacoma-Bellevue, Washington – 23.7%

2. San Francisco-Oakland-Hayward, California – 26.8%

1. San Jose-Sunnyvale-Santa Clara, California – 31.6%

However, while these have a plentiful supply of employment opportunities, that doesn’t mean college grads can afford to live there. Here are the metros where college grads bring in the most income, along with the median monthly income they bring in:

5. New York-Newark-Jersey City, New York-New Jersey-Pennsylvania – $2,993

4. Houston-The Woodlands-Sugar Land, Texas – $3,188

3. San Francisco-Oakland-Hayward, California – $3,250

2. San Jose-Sunnyvale-Santa Clara, California – $3,333

1. Washington-Arlington-Alexandria, D.C.-Virginia-Maryland-West Virginia – $3,337

But even the best paychecks in some metros aren’t enough, or are barely enough, for college grads to live on. So if affordability is at the top of the list, these are the most affordable metros, and the percentage of affordable listings for college grads:

5. Toledo, Ohio – 37%

4. Akron, Ohio – 38.6%

3. Detroit-Warren-Dearborn, Michigan – 39.5%

2. Youngstown-Warren-Boardman, Ohio-Pennsylvania – 40%

1. Dayton, Ohio – 42.8%

Combining affordable living conditions with the jobs that are available, Trulia’s study found that these six metros, in no particular order, hit the sweet spot. 

Seattle, Washington

In this city, 23.7% of jobs listings are for new college grads.

Dayton, Ohio

This city ranks as No. 1 for affordability as 42.8% of rentals are affordable for grads.

Detroit, Michigan

Here, college grads will have no problem finding a place to live as it ranks No. 3 in rental affordability.

Pittsburgh, Pennsylvania

This city holds a good balance as it ranks No. 17 for affordability and No. 37 for jobs available.

Baltimore, Maryland

In this market college grads will find a strong job market and good pay.

Hartford, Connecticut

The city made the list of top 10 metros with the best median income for grads at $2,890.

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Homeowners continue to overestimate their home value

Homeowners and appraisers continue to hold conflicting views on the value of their home, a gap that widened once again in April, according to the Home Price Perception Index from Quicken Loans.

Appraised home valued came in 1.9% lower than what homeowners expected as many Americans continued to overvalue their home. This marks the fifth consecutive month where the gap between appraiser and homeowner opinions widened.

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HPPI

(Source: Quicken Loans)

Although the gap continued to widen, appraised valued increased in April. The National Home Value Index, which measures home prices based solely on appraised values, shows home prices increased 1.06% in from March and 5.08% from April 2016.

The gap between homeowners and appraisers of 1.9% is up from last month’s gap of 1.77%.

“The appraisal is one of the most important data points in a mortgage transaction,” said Bill Banfield, Quicken Loans vice president of capital markets. “This single number can impact how much money a buyer needs to bring to closing, or the equity that is available to the homeowner on a refinance.”

“If homeowners have a grasp on home value differences throughout their local area, it can lead to a smoother mortgage process,” Banfield said.

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HPPI

(Source: Quicken Loans)

And while homeowners are overestimating the value of their homes, home price growth is accelerating. The HVI increased 5.08% annually in April, up from March’s annual increase of 3.3%.

“Home values were pushed higher once again by the demand for housing outpacing the stock of available homes,” Banfield said. “This effect is intensified by the start of the spring buying season.”

“While sellers are obviously thrilled as their investment continues to grow in value, this trend could make homebuyers set their sights on smaller homes or less pricey neighborhoods,” he said. “I would encourage homeowners who are considering listing their home to take advantage of the opportunity they have in this sellers’ market.”

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Here are the top 10 metros for empty nesters

Zillow, an online marketplace, conducted a study to show the top 10 housing markets for empty nesters in the U.S.

As it turns out, the pricey markets and places with weak labor markets have the highest concentrations of empty nests, the report, which is based on the most recent U.S. Census Bureau data from 2015, shows.

And the lowest densities of empty nesters are found in booming cities with strong job markets, retirement communities and new family-oriented areas.

In other words, this study by Ellie Mae which shows where Millennials flock will be the last places you might find empty nesters. And you can count metros in Florida and California off the list as well.

Empty nests are homes where the heads of the household are 55 years or older, own the home and have lived in it 10 or more years; there are no children of any age living in the home. These homes are gaining ground as the Baby Boomers age, rising to 15.5% of all households in 2015.

Here are the top 10 metros with the highest percentage of empty nesters:

10. Baltimore, Maryland – 17%

Baltimore city

9. Louisville, Kentucky – 17.2%

8. Virginia Beach, Virginia – 17.4%

7. Detroit, Michigan – 17.9%

skyline

6. Philadelphia, Pennsylvania – 18.2%

5. Birmingham, Alabama – 18.3%

Alabama

4. Richmond, Virginia – 18.6%

3. Cleveland, Ohio – 19.4%

Ohio

2. Buffalo, New York – 20.1%

1. Pittsburgh, Pennsylvania – 20.2%

skyline

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Trulia: Majority of homes remain priced below pre-recession peak

While many reports show that home prices in many markets surpassed their previous peak, Trulia’s new study shows this is just the average, and more homes than not have yet to recover their full value lost in the recession.

When it comes to individual homes, the U.S. housing market has yet to recover, according to the study. It shows just 34.2% of homes reached values surpassing their pre-recession peak.

While a full 98% of homes in Denver and San Francisco surpassed their pre-recession peaks, this is not the case across other metros in the U.S. In Las Vegas and Tucson, Arizona, for example, less than 3% of homes reached their pre-crisis peaks.

The study studied property-level home value recovery nationally and in the 100 largest metro areas by comparing the nominal value of each home as of March 1st to the nominal peak value of that home prior to the onset of the Great Recession, December 1, 2009. If the current value was greater than the pre-recession peak, the study considered that home to have recovered.

Since the recession, the share of homes that reached their pre-crisis levels has risen about five or six percentage points each year. At this rate, the study shows the market won’t see 100% of homes reach their pre-crisis levels until about September 2025.

This map shows the percentage of homes that recovered their pre-recession peak value by zip code:

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home values

(Source: Trulia)

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Experts weigh in: Positive jobs report fails to fix what’s wrong with housing

Economists agree that the April jobs report proved the economy is moving along at a healthy pace despite the disappointing job numbers in March.

But when it comes to the housing market specifically, this positive report does little to help the factors that are really blocking growth in housing.

As a refresher, the total nonfarm employment increased by 211,000 in April, according to the U.S. Bureau of Labor Statistics. This is up from March’s increase of 79,000 and nearly matches February’s increase of 235,000.

“Today’s report is solid for sure,” explained Nela Richardson, chief economist at Redfin. “Though, it will have little impact on the trajectory of the housing market this spring and summer.”

She continued to state that the 2.5% pick-up in wages from a year ago is no match for the 8% year-over-year increase in national home prices this spring.

“So far this year there are no signs that the economy will alleviate the mismatch between incomes and home prices that continues to confound middle-class home buyers in expensive cities,” said Richardson.

According to the most recent home price report from CoreLogic, home prices continued their upward trend in March, increasing year over year by 7.1% in March 2017 compared with March 2016.

And this upward trend in home prices in home prices is only slated to continue, with a forecasted increase of almost 5% in home prices over the next 12 months.

Joseph Kirchner, realtor.com senior economist, expanded on the housing impact, adding that while it’s good news that the economy added 5,000 construction jobs, “It’s a fraction of what we need, and it won’t solve the inventory problems that stop consumers from finding homes to buy.” 

Plus, this is inventory problem is far from new to the economy. Freddie Mac Chief Economist Sean Becketti recently noted that tight housing inventory has been an important feature of the housing market at least since 2016.

First American Chief Economist Mark Fleming broke down the construction numbers even further and stated that the pace of construction-job growth has been declining on a year-over-year basis for over a year.

“This month’s increase of 5,000 jobs is only a 2.6% increase from a year ago. As the chart below shows, the ability to increase housing starts is highly dependent on construction employment,” said Fleming. “Homebuilders are reporting that the lack of construction workers is hampering their ability to increase production, which is a desperately needed source of supply, as most markets already have very tight inventories of homes for sale. In fact, we have been underbuilding residential housing relative to demand since 2009.”

The chart below compares housing starts and construction employment.

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chart

(Source: First American)

As far as the overall jobs report, economists were generally positive on the report and stated the news likely signals an interest rate increase from the Federal Reserve in the June meeting.  

The Federal Open Market Committee met earlier this week for its May meeting and unanimously voted to hold off on raising interest rates.

“The pickup in hiring in the April jobs report supports the popular view that March’s weak headline was a weather-induced slowdown. The trend in nonfarm payrolls so far this year points to a steady improvement in job gains, propelling the labor market further into full employment territory,” said Doug Duncan, Chief Economist at Fannie Mae. “The report is consistent with a faster pace of monetary policy normalization this year and supports our expectation of two rate hikes in June and September and a change in the Fed’s reinvestment policy in December.”

National Association of Federally-Insured Credit Unions Chief Economist Curt Long reaffirmed this, stating, “This should ease fears of an abrupt decline in the labor market brought on by last month’s weak report, but reaffirms the longer-term trend of a gradual slowing in job creation. Despite ongoing questions over muted wage growth, the Fed is likely to be heartened by the report and a rate hike in June is more likely than not.”

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ADP predicts moderate job increase in April

Employment is set to increase in April, however construction jobs could see a decrease, according to the ADP National Employment Report.

Jobs are predicted to increase by 177,000 for the month, according to the report. While this is down from last month’s predicted increase of 263,000, it is up significantly from March’s actual jobs increase of just 98,000.

And while the ADP report doesn’t have the best record when it comes to predicting employment, even the street’s estimate was far above the actual jobs increase in March.

This chart shows ADP’s changes in nonfarm private employment over the past year:

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ADP

(Source: ADP, Moody’s Analytics)

“Admittedly, that 177,000 gain represents a six-month low for the ADP series,” Capital Economics Chief Economist Paul Ashworth said. “But, with the unemployment rate down to only 4.5%, there is no way that employment could continue to expand at in excess of 200,000 per month.”

Unlike previous predictions, this one shows construction jobs will decrease in April during a time when low housing inventories make new construction more needed than ever.

The goods-producing sector is set to increase by 12,000 with changes in the following areas:

Natural resources and mining: Increase 3,000

Construction: Decrease 2,000

Manufacturing: Increase 11,000

And the service-providing sector is predicted to see job gains of about 165,000 with changes in these areas:

Trade, transportation and utilities: Increase 5,000

Information: Increase 1,000

Financial activities: Increase 2,000

Professional and business: Increase 72,000

Education and health: Increase 41,000

Leisure and hospitality: Increase 35,000

Other services: Increase 9,000

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2017 Homebuyer Insights Report [Infographic]

(BPT) – Younger buyers understand the long-term benefits of homeownership. In fact, millennials who have become homeowners are buying what they can afford now, and are planning to purchase their dream home in the future. Learn more about current trends among modern homebuyers in this infographic.

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