State of the State for 2015 : Predicted Trends
The coming year is likely to see a major shift in real estate demographics, as Baby Boomers retire to new communities and Millennials, no longer held back by weak job prospects, enter the market en masse for the first time.
And international buyers are continuing to buy up California housing, particularly in Los Angeles and the Bay Area.
Boomers are seeking out warmer climes and lower costs of living. However, rather than traditional retirement communities such as Boca Raton, they are looking for areas with vibrant economies.
Lawrence Yun, NAR chief economist, says the share of men and women working after their 65th birthday has increased.
“A broadly improving economy and rebounding home prices are giving baby boomers the opportunity to sell and move to support their retirement lifestyle. Furthermore, our research identified cities movers are gravitating to while still remaining in the workforce as a business owner,” Yun said.
The top markets positioned to see an influx of Boomer homebuyers are (listed alphabetically):
• Albuquerque, N.M.
• Boise, Idaho
• Denver
• Fort Myers, Fla.
• Greenville, S.C.
• Orlando, Fla.
• Phoenix
• Raleigh, N.C.
• Sarasota, Fla.
• Tucson, Ariz.
Other markets with strong potential for attracting baby boomer homebuyers include Chattanooga, Tenn.; Dallas and McAllen, Texas; and Tampa, Fla. The only California community on this list is Riverside.
“These metro areas are attractive to baby boomers because of their housing affordability, lower tax rates and welcoming business environment,” says Yun. “With baby boomers working later in life, these factors will likely play as much of a deciding role of where boomers eventually retire as will areas with a warm climate or variety of outdoor activities.”
Their grandchildren, too, are looking to purchase homes – in most cases, their first homes.
Millennials, which includes young adults in their 20s to mid-30s, came of age during the Great Recession and are just now establishing their own households. They are better educated than previous generations, more saddled with debt from student loans, and more cautious about spending their money.
Leslie Appleton Young, chief economist for the California Association of Realtors, sees several factors working in their favor.
Mortgage rates remain low – at least for the next several months – and lending standards are loosening up a bit.
Construction has increased and more homes are coming on the market, creating opportunities for buyers.
The big stumbling block is affordability. During the downturn, housing prices fell meaning more families were able to afford entry level homes. Today, the affordability index for first-time homebuyers, as measured by C.A.R., is at 44 in the Bay Area, meaning 44 percent of households in our region could afford to purchase an entry-level home here. That is one of the lowest in the nation and even below most of the rest of California. (The national level is 75.) But it is well beyond the 25 percent the Bay Area experienced in the early 2000s.
The real estate website Zillow predicts that Millennials, sometimes referred to as Generation Y, will be the largest group of homebuyers in the coming year. According to research from Zillow, 42 percent of that age group plan to buy a home in the next one to five years; that’s 11 percent higher than Generation X (ages 35-55) – who’ve led the market’s recovery to this point.
Millennials are expected to account for two-thirds of all new household formations between now and 2020. Also during this time, rents are forecast to continue growing by about 3.5 percent per year, while home appreciation is expected to cool down. This combination is likely to result in more first-time home sales.
“As renters’ costs keep going up, I expect the allure of fixed mortgage payments and a more stable housing market will entice many more otherwise content renters into the housing market,” said Stan Humphries, Zillow’s chief economist.
Meanwhile, approximately 6 percent of those who purchased residential real estate in California last year were foreign nationals. That’s down from 8 percent in 2013 – probably because home prices were up and inventory was low – but still a significant segment of buyers.
As for sellers, inventory remains low, but there are may be some bright spots on the horizon.
Like Appleton Young, Humphries expects builders to increase the number of units constructed, as builders switch gears from building large expensive homes to building more homes that are less expensive.
In the Tri-Valley, for example, we are seeing a trend toward more multi-story townhouses and zero lot line housing, and fewer large homes on big lots.
In addition, investors are finally starting to sell their property, as they see more equity return.
Four of the top five metropolitan areas for large institutional investor ownership are located in California: San Francisco (63 percent), Portland (50 percent), San Diego (47 percent), Los Angeles (46 percent), and Riverside-San Bernardino (46 percent), according to RealtyTrac.
So we’re likely to see more of these properties available for purchase in 2015.
Fannie Mae and Freddie Mac Conforming Loan Limits Won’t Decrease
LOS ANGELES – The Federal Housing Finance Agency announced recently it will keep the 2015 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac at $417,000 on one-unit properties in most areas and a cap of $625,500 in high-cost areas, including the Bay Area.
This is good news for buyers who want to take advantage of those mortgage programs, and for sellers whose homes are now attractive to a wider pool of potential buyers.
“C.A.R. applauds the FHFA for retaining the existing Fannie Mae and Freddie Mac conforming loan limits, and even raising the limit in some California counties,” said Chris Kutzkey, president of the California Association of Realtors.
“The FHFA recognizes that home prices have risen significantly in California, especially in high-cost coastal areas, where lowering the loan limits would have hurt the housing recovery.”
Both of the state’s senators, Barbara Boxer and Dianne Feinstein, had pushed to keep the loan limits at the higher rate.
By: Cher Wollard
