Is the American Homeowner’s Dream Dead?

Is the American Dream of homeownership dying with Millennials, and do they even care? Will the proposed tax reform be the death knell?

Minneapolis a Top City for Millennial Homeowner Growth

Let’s start with a quick review of current housing market conditions:

  • Homeownership rates are hovering around a five decades low.
  • Low inventory rates are making it hard to find a house to buy; compounding this issue, rental inventory has become an increasingly appealing option for would-be buyers.  It’s no longer hard to find a rental unit with the bells and whistles of a million dollar house… this makes it easier for would-be buyers to “park” in a rental and shop longer for that perfect house.
  • Interest rates, by historic standards, are currently favorable for borrowing. Rates will almost certainly go up from here. Likely in 2018. This will make borrowing harder and will add to the debt burden of student loans (and credit card debt, car loans, etc.). This will hit Millennials particularly hard.
  • At approximately 85 million people, Millennials are now the largest generation; they will have an increasingly large impact on the housing market as they reach prime buying age and Boomers begin to age out.
  • Millennials have already started to take their position as the drivers of the housing market: 34% of all homebuyers today – by far the largest group of buyers – are Millennials. And, this number is expected to grow significantly in the next 3-5 years. Millennials already represent 66% of first time homebuyers, according NAR.
  • The tax reform bill working its way through Congress will potentially eliminate the appeal of the mortgage deduction.

So, what does it all mean?

Picture1There does not seem to be any major change on the horizon that will improve homeownership rates in a meaningful way. This is doubly true given the increasing importance of Millennials in the housing market and the reality that most home ownership headwinds will hit Millennials particularly hard.

Expect a continuation of low homeownership rates. Sure, most of us still want to own a plot of land to call “home.” But, the decision to own versus rent has become increasingly blurry; there are attractive rental options to ride out the low inventory environment and buying is unlikely to get easier or more attractive from a purely financial perspective.

For real estate agents, they must understand and adjust. The message is simple: there is only one “housing” market. Increasingly, your clients will debate rent versus purchase. You need to be able to service both options. Many real estate agents seem to understand this. They are starting to service the large and growing renting population in order to build long-term relationships with future home buyers; agents are also using rentals to diversifying their commission revenue during a softer sales cycle, especially agents who are new to the business.

Let me leave agents with this: as part of its 2017 housing trends report, Zillow found that 57% of first time buyers considered renting and 50% of all eventual renters considered buying.

What do you see when you read the tea leaves?

The following is some additional information for readers intended to help assess whether home ownership rates may rebound in a meaningful way:

Inventory
Picture1In 2017, national housing inventory hit some of its lowest levels on record. According to Trulia, the number of homes on the market dropped for eight consecutive quarters leading up to Q1 2017, falling 5.1% over the past year. Across different housing segments, starter and trade-up home inventory fell 8.7% and 7.9% year-over-year nationally. Meanwhile, the stock of premium homes remained relatively unchanged since last year, having fallen just 1.7%.

The disproportional drop in inventory of starter homes is driving home prices higher, which in turn makes homeownership less affordable.

Interest Rates
Population2Interest rates have been hovering at or near historic lows for the past few years. Buyers – especially first-time homebuyers –  should be very motivated to borrow at today’s rates. However, credit has tightened and borrowing a mortgage requires much higher credit scores and larger down payments.

Interest rates seem to be on an upward trajectory, likely impacting buyers in two meaningful ways:

  1. Mortgage rates will increase, which makes any purchase and carrying cost, more expensive. This will compound an already high price environment caused by tight inventory constraints (more on this later).
  2. Student loans are paralyzing millennials. More than two-in-five (42%) millennials between 18-29 years old report that they, or someone in their household has student loan debt. 58% of college graduates report having student debt according to a recent Harvard IOP study. The more expensive it is to service that student loan debt, the longer it might postpone the home buying decision.

Tax Reform
PopulationThe tax reform currently being proposed by congress will cap – and all but eliminate – the mortgage interest deduction. Given the increased standard deduction ($12,000 for single and $24,000 for married taxpayers), many more taxpayers will forgo itemizing and take the standard deduction. The mortgage interest deduction is perhaps the single largest tax deduction folks make on their personal income tax return each year. Losing that benefit could present a serious disincentive to becoming a homeowner.

Residential rental properties, like owner-occupied housing, currently receive tax subsidies under existing tax rules, but the newly proposed tax plan significantly shifts the tax system to favor rentals over owner-occupied homes. This could result in increased cost of home ownership and lead to more people deciding to rent. The dramatic increase in the relative tax advantage for residential rental real estate could lead to increased home rentals in your neighborhood. Maybe it will be cost-advantageous to sell your home to a residential real estate firm and lease it back?

Finally, if the mortgage tax deduction is eliminated, Moody’s Analytics estimates that it could cause home prices nationwide to drop between 3-5%. This would likely further tighten inventory as sellers will likely balk at accepting losses in the near term.

Household formation
According to the census bureau, the muted housing recovery in recent years can be traced, in part, to slower household formation among young adults; analysis suggests that the boom and bust in housing has been a key factor. Recent weakness in household formation relative to population growth among young adults represents a reversal of the unusual strength during the boom years. The net effect has left shares of current young adults heading households at levels similar to those in the mid-1990s before the housing boom.

Population

Source: U.S. Census Bureau, Housing Vacancy Survey and Annual Population Estimates; annual rates reflect July year-over-year percent changes.

Headship and Homeownership as share of age group population

Population2

Source: U.S. Census Bureau CPS Annual Social and Economic Supplement, Annual Population Estimates, and Housing Vacancies. Author’s calculations.

Ishay Grinberg

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Cambridge imposes restrictions on AirBNB rentals

Cambridge.jpgMost of the focus on AirBNB stems from the money lost from a lack of taxation, an estimated $15 million from around 592,000 guests in Massachusetts last year. However, while other lodging establishments need to adhere to a strict set of municipal regulations, the owner of a unit on AirBNB currently does not.

State Representative Aaron Michlewitz recently proposed a bill that would impose safety and insurance regulations on top of taxing units, stating: “The taxation without the regulation piece is where the debate stands now”.

While some municipalities are waiting to see what the state decides to do, the Cambridge City Council has already voted to impose their own regulations on AirBNB rentals. Only hosts who live in the same or adjacent building would be allowed to make their units available. These units would need to be registered with the city and concede to inspections once every five years.

This would allow owners to continue to collect income from short-term rental units while ensuring guest safety. The new restrictions will take effect in April 2018.

It’s estimated that about 90,000 guests used AirBNB to find accommodations in Cambridge last year.

Renting & Buying with the “Walk Score” in Mind

1The “Walk Score” is a procedurally generated number assigned to addresses to determine their specific walkability.  The true value in this number is that the higher it is, the less likely you will need a car to comfortably live.  The “Walk Score” calculates the distances to certain amenities that most renters and buyers look for; grocery stores, public transit, nightlife, etc..  Whether you are in the market for a temporary rental or your next home, this score provides a wealth of information.

Walk Score,” an automated efficiency model, has adapted its information gathering to provide scores not only on walkability, but also transit, biking, and crime.  Taking into account all of these different metrics, walk scores range from 0 to 100.  Scores ranging from 0 – 24 dictate a car as an absolute necessity while scores 70 and above suggest that you can accomplish all errands on foot.  

The most obvious money saving benefit of the “Walk Score” is  removing most, if not all, driving from your daily routine.  Save on gas, upkeep, and maintenance, and take public transit to work.  

walkConvenience is the other major selling point of the “Walk Score.”  Easy access to amenities and recreation can make or break a neighborhood.  Higher walk scores typically translate into higher quality neighborhoods.  Pedestrian Friendliness is determined too, by analyzing population density, block length, and intersection density.

On the other side of the argument, a high “Walk Score” often results in higher prices.  In a study done by Redfin, one point of “Walk Score” was worth up to $3000.

Most websites, including RentalBeast.com, feature the score on their listings.  So before you make your next move, make sure to check the “Walk Score.”  

New Brightline Rail connects South Florida

2Brightline Rail Service, connecting Miami, Fort Lauderdale and West Palm Beach, will soon launch and offer discounted rates for its first few trips. The tentative first runs will begin in late summer with full service opening up in early autumn. Ride ticket prices have not been announced, but CEO Dave Howard stated that it is, “going to be less than the cost of driving your car” regarding the discounted tickets.

The bigger picture to this private endeavor is that it will connect our metro and stay east of I-95. At full service the rail will offer 32 daily round trips between Miami and West Palm Beach. This is a crucial step into changing South Florida’s car-centric culture. Traffic continues to be one of the leading limiting factors for economic growth in our market. Brightline expects a ridership of three million passengers per year.

Each county is getting its own station starting with a more than eleven acre Miami Central Station that will offer residences, offices and retail. Broward and Palm Beach Counties will get 60,000 square foot stations right in the heart of their urban core.

Landlords in the area should get excited because this brings the city connections that renters look for in a short or long-term home. The Millennial generation tends to especially enjoy alternative travel and staying close to major elements in the city.

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Recycling old buildings keeps Philly’s character intact

“Repurposed, remodeled, and revamped.”

feat_history_newsstand_old-jan16-8e0ba478These words are being used more and more in the construction boom that Philadelphia is currently experiencing. Every week there seem to be new restoration and renewal projects proposed, or announced, in what are currently just dilapidated or un-used buildings.

What has been fantastic to watch is the effort and time developers have put into keeping the character and integrity of these architectural slices of history. Structurally, Philadelphia is an extremely diverse city with tons of variant architectural elements scattered throughout its limits. Keeping this personality alive is of utmost importance for the city.

Curbed has done a fantastic job detailing the many different developments.
Some of my personal favorites are below.
Converted West Philadelphia high school in the apartments named “The West Lofts.”
west-loft-apartments-philadelphia-pa-building-photo.jpg
The Hale Building revamp which is labeled as a “Hub for creative tech companies.”
JKRP-Architects-Hale-Building-2-819x1024
The on-going plans for the Edward W. Bok Technical High School; and the incredible views from Bok Bar.
bokbar-2

Homes you can rent in the Miami area for under $2000 right now!

Rental properties are becoming the norm in almost every market across the United States. Those seeking a new home are making the decision to rent at an increasing rate; so much so that the supply is having difficulty keeping up with the demand. Though the market is expanding and catering to the renter, it can be a challenge to get a handle on the ideal price. Because of this, we’re happy to provide you with a glimpse at what under $2000 in rent will get you in one of our most popular markets! —RentalBeast.com

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Homes you can rent in Boston for under $2000 right now!

Rental properties are becoming the norm in almost every market across the United States. Those seeking a new home are making the decision to rent at an increasing rate; so much so that the supply is having difficulty keeping up with the demand. Though the market is expanding and catering to the renter, it can be a challenge to get a handle on the ideal price. Because of this, we’re happy to provide you with a glimpse at what under $2000 in rent will get you in one of our most popular markets! —RentalBeast.com

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