Rising Prices Squeeze Out Young Buyers
Natalie Pace and Jed Smith | September 10, 2015
"One can say that we are having a nationwide housing cost problem," says Lawrence Yun, the chief economist for the National Association of REALTORS®, in a new interview with The Huffington Post. Housing's affordability problem remains a barrier particularly for first-time buyers wanting to enter the market. Indeed, the latest existing home sales report shows that the share of first-time home buyers was 28 percent in July, down from 30 percent in June. Home prices have been rising faster than the median household income of about two percent annually, and as of June 2015, home prices were up six percent annually, according to NAR. Read more: First-Time Home Buyers Are Receding The lack of available housing is one cause of these booming prices, with current home building activity at only half of the normal level. In the recent REALTORS® Confidence Index Survey, REALTORS® report that homes are increasingly becoming unaffordable and that sellers are reluctant to move because they can't find affordable homes. "Home prices are rising anywhere from 3-4 times as fast as people's income," says Yun. "Rents are double the income growth rate. This is unhealthy, unsustainable. The only way to tame the housing costs is to have more supply. So, maybe relaxing the regulations on small-size banks so they can lend to the homebuilders. We have a mismatch, a dramatic shortage, of owner-occupant homes that are available for sale." Millennials in hot markets like San Francisco and Washington D.C. are having a tough time purchasing homes due to rising rental costs, which makes it hard to save for a downpayment, as well as a lack of income growth, the burden of student-loan debt, and tough mortgage underwriting standards. However, in smaller markets away from the coasts, many young buyers are finding affordable deals, and the cities are evolving to meet their needs. "Many middle parts of the country, like Des Moines and Grand Rapids now have a vibrant downtown, with millennial walking communities and strong job creation," says Yun. "In these markets, homes are quite affordable. So those millennials with jobs will be able to quickly convert into home purchase."
Source: The Huffington Post and The Realtor Economic Outlook Blog