Demographics and Residential Lending
Age, population trends, and gender do matter in the home buying process.
There, I said it. Someone in their early 20s probably can't afford a 3,500-square foot home on 5 acres in Virginia with a stable, and someone in their 80s probably doesn't want it anymore, or may want a cottage out back. Let's look at some demographic stats that lenders should at least be aware of since they influence the lending business.
The U.S. Census Bureau projects the U.S. population will be 327 million on Jan. 1, 2018. This represents an increase of 2,314,238, or 0.71 percent, from New Year's Day 2017. If you really like numbers, the current rate is the United States experiencing one birth every 8 seconds and one death every 10 seconds. Meanwhile, net international migration is expected to add one person to the U.S. population every 29 seconds. The projected world population on Jan. 1, 2018, is 7.4 billion, an increase of 78 million for the year. The Census Bureau's U.S. and World Population Clock simulates real-time growth of the United States and world populations.
"Old age is always 15 years older than I am." So the quote goes. It certainly is relative - just ask Jaclyn Smith. Age certainly matters in residential lending, whether companies are trying to hire employees who are under the age of 30, or lend to those in their 20s and 30s. Gender also figures into things. The National Association of Realtors reports single women account for 17% of homebuyers vs. 7% for single men, they buy homes at a later age (34 years old for women vs. 31 for men) and they buy homes with a lower average price ($173k vs. $191k).
Baby Boomers aren't selling! Bloomberg reports that 53% of owner-occupied homes are owned by people 55 and older. Baby boomers are holding on to their homes longer and are crowding out others from the market, namely younger Americans trying to own their first property. That figure was only 43 percent a decade ago. Certainly nothing could go wrong in an intergenerational housing fight where one side is holding out for a ridiculously expensive cash-out that the other side can likely never offer.
Focusing on single family residential lending, Census Bureau data finds the number of new homeowners in Q1 was about 132% higher YOY than the number of new renter households. This is the first time that has happened since 2006 and could point to a rising trend in home ownership for younger families.
Two of the biggest home buying segments in the industry, millennials and baby boomers both have very specific desires for their future homes. Here's a story on how two builders adjusted their approach for ultimate success.
And the reNEWable Living Home captures features important to aging homeowners, for folks who want to "age in place."
Do you have all the workers you need? Builders don't. Chronic labor shortages are changing the way many firms recruit and compensate workers, according to a new AGC report from a few months back - and nothing has really changed since.
Millennials currently outnumber every other generation, and almost every industry - from restaurants to mass media - is catering to their preferences. But another market that is feeling the impact of Generation Y is the suburban office sector, as a number of corporations have relocated from office parks outside of major cities to urban hubs. Despite corporate departures, are suburban offices still positioned for growth?
Number of First-Time Home Buyers Falls to Lowest Levels in Three Decades. This figure represents the third straight annual decline and lowest percentage since 1987. The share of U.S. homes sold to first-time buyers this year declined to its lowest level in almost three decades, raising concerns that young people are being left out of an otherwise strong housing-market recovery. First-time buyers fell to 32% of all purchasers in 2015 from 33% last year, the third straight annual decline and the lowest percentage since 1987, according to a report released by the National Association of Realtors. The historical average is 40%, according to the group, which has been recording such data since 1981.
How does anyone under the age of 40 live in a high-priced coastal area? Jeremy Potter writes that, "McHugh, a writer for The Ringer, cited co-living or communal living as one way that we're seeing young people afford to live in places like San Fran and Brooklyn. Several single bedrooms all sharing common areas like kitchens, bathrooms and living rooms. In reality, the companies she highlights - Nook and Common - cater to highly qualified tech employees in rapidly growing companies. The same need exists for those people cited in the WSJ piece to move to medium sized or Midwest cities too. Same theory applies. Co-living can lower the barriers to get people moving again. Why do we want them moving? The growth of the economy and the ability for us to fill in the wealth/income/education gap demands it."
Retiring older employees are being replaced by younger and cheaper workers, a San Francisco Fed study finds.
Certainly, much wealth is held by older people - logical, right? They've certainly benefited by a rallying stock market, and appreciating home markets in many areas. Since 2000, spending among grandparents has annually exceeded general consumer spending by roughly 8%, according to a report from Cadaret, Grant & Co. This behavior may likely be influenced by the fact that baby boomers are the richest generation in US history. Similarly, an AARP study finds 96% of grandparents actively spend money on their grandchildren and more than 40% spend in excess of $500 per year. Among the major expenses that grandparents routinely contribute are for education, day-to-day living and medical expenses.
This is not lost on banks, especially regional and community banks. One of the best ways for community banks to start such discussions with these customers is to inquire whether they have thought about assisting their grandchildren with the expense of college. Given the importance of saving for college, this is an easy area to begin. In fact, a Fidelity Investments survey finds 53% of grandparents were already saving for their grandchildren's college education or had plans to do so, with 90% indicating that they would rather help with college costs than give children other gifts.
One issue, however, is that the amount of money contributed by grandparents could potentially decrease how much financial aid a child could receive. Banks and financial advisors tell clients that it is important to be aware of the pros and cons before committing to a certain contribution. Beyond college saving plans, baby boomer grandparents could also be approached about incorporating grandchildren into estate plans and the importance of keeping beneficiaries up to date.
Banks know that helping to educate grandparents about saving for grandchildren also opens the door for client relationships with the parents of those children. By assisting the grandparents, a bank not only supports them and their grandchildren, but also positions itself as an important financial source for the whole family.
Many people in their 20s tend to rent before buying their own place. What's going on with rents? Well, a story in the Wall Street Journal about Freddie Mac's latest survey states that, "A boom in apartment construction in the last few years has caused rent increases to begin to level off in many U.S. cities, while home price gains have accelerated over the past year. As a result, roughly 76% of renters in said they believe renting is more affordable than owning," up from 65% about a year ago. Good for landlords, right? (Ever think about that term?) But the persistent shortage of homes for sale on the single-family side is depressing the appetite for home ownership. To pick one index out of dozens, the S&P CoreLogic Case-Shiller index was up 5.9% over the last year - and wages sure aren't going up that much.
Much of the news lately has been about the lack of inventory as we moved from summer through autumn and into winter. In other words, out of the traditional home buying season. The lack of housing inventory comes because of a combination of factors; the reduction of new housing starts post-crisis, investors buying and now renting homes, and the lack of equity and/or rising interest rates keeping people in their homes longer than anticipated. And let's not forget lack of buildable land near cities, lack of labor, and the expensive permit process.
How about "McMansions" - huge houses 20 feet from other huge houses on small lots? Some builders are trying to orient the house on the lot so that windows don't face the house next door. But baby boomers are looking to get out of these homes, and millennials are not lining up to buy them.
Lender and Investor Updates on Wildfires
Practically every lender and investor's disaster policies and procedures are driven by the Federal Emergency Management Agency. FEMA declaring an area a disaster area drives the decision making.
PennyMac posted a new announcement in reference to its Disaster Policy Reminder for Southern California Wildfires.
In response to the Southern California wildfires, Wells Fargo Funding is enacting its disaster policy with an effective date of December 5, 2017. Sellers must follow its Disaster Policy. Conventional Conforming/Non-Conforming and Guaranteed Rural Housing - Adhere to Seller Guide sections 820.19: Disaster Policy and 820.20: When Required. Government - Adhere to FHA and VA handbook requirements.
Mortgage Solutions Financial posted a California wildfire disaster alert update.
Pacific Union Financial continues monitoring the impact of the Thomas, Rye, Skirball, Creek and Lilac wildfires currently affecting California. Any properties located within areas identified by the FEMA offering private assistance will require confirmation, per its published guidelines, that the subject property has not been affected by the fires in the area. This confirmation includes certification of the condition of the property prior to the purchase of the loan by Pacific Union. FEMA has included areas in the California counties of Ventura, Los Angeles and San Diego in its disaster declarations. Pacific Union requires certifications from Correspondents for properties in the affected counties for purchase to occur.
Leading money managers who control a combined total of $7 trillion in fixed-income assets have offered their thoughts on the trends that look likely to create headlines in the year ahead. The steepening yield curve and continued growth of emerging markets are identified as major themes, with the managers largely confident that the global economy enters 2018 in robust health.
The 10-year Treasury note ended Thursday yielding 2.43% after another day of low volume as many market participants are already finished for the year. The Chicago PMI report, not a big market mover anyway, for December increased a better than expected 3.7 points to 67.6 versus a projected 62. But it is the highest reading since March 2011 and production increased to it's best in 34 years. Jobless claims were unchanged from the previous week at 245,000.
There are no major economic reports on Friday and markets will close early at 2PM ET in what is expected to be a quite end to the year. Nonetheless, we're starting Friday with the 10-year at 2.44% and agency MBS prices unchanged, so rates are nearly identical to last night's close.