Fewer Home Buyers Pay All-Cash

Fewer Home Buyers Pay All-Cash. Image courtesy of kittijaroon / FreeDigitalPhotos.net

The share of home buyers using all-cash to pay for their real estate transactions dropped to the lowest level since November 2009, according to a new report by RealtyTrac. Nearly 25 percent of all single-family home and condo sales in May were all-cash purchases, down from 30 percent a year ago.

The percentage of cash sales is nearing a long-term average that goes back to January 2000 of 24.8 percent. Cash sales are also well-below the peak of 42.2 percent reached in February 2011.

The share of institutional investors — those who purchase at least 10 properties in a year and who often pay all-cash — is plunging.

As such, housing markets are transitioning from an “investor-driven, cash-is-king market to one more dependent on traditional buyers,” says Daren Blomquist, vice president at RealtyTrac.

The top five metro areas with the highest share of cash buyers (and a population of at least 200,000) are all located in Florida. They are: Naples-Marco Island (56%); Sarasaota-Bradenton (54%); Miami (53.4%); Ocala (49.9%); and Cape Coral-Fort Myers (49.7%).

Source: “All-Cash Share of U.S. Home Purchases in May Drops to Lowest Level Since November 2009,” RealtyTrac (July 1, 2015)

Amenities That Jack Up Sales Prices

Amenities That Jack Up Sales Prices. Image courtesy of Toa55 / FreeDigitalPhotos.net

Americans will dig deeper in their pockets and shell out more cash to live near top-notch schools and in safer neighborhoods with access to retail and “artificial amenities,” according to a new study published in the Journal of Urban Economics. In analyzing 2,000 neighborhoods across the country, researchers found that home buyers are willing to potentially spend thousands of extra dollars for these amenities.

A regional funding increase of $1,000 per student in schools is associated with a $570 annual increase in what people are willing to pay for a home in the neighborhood, though “this number is likely biased from well-funded areas being nicer or having more desirable residents,” researchers note.

However, unsafe neighborhoods will bring in much lower offers from buyers. A 10-point increase in the murder rate — from 10 to 20 deaths per 100,000 residents annually — is associated with an annual drop of $1,000 to $1,600 in what people are willing to pay, according to the study.

Buyers will also pay more incrementally depending on how many bars and restaurants there are in the neighborhood. Each establishment per 1,000 was found to be worth an annual $170 increase in what people say they’re willing to pay for a home. That number may also reflect a desire to live near a variety of stores and entertainment areas, researchers note.

A neighborhood’s size, density, and “artificial amenities” — those that are created by the residents — were also found to be important, even more so than living near a natural environment such as mountains and coastlines, according to the study.

“Because artificial amenities are largely produced by local residents, they may reflect the desirability of the populations themselves,” the authors note. That means residents are willing to pay not only for the neighborhood itself but the access the neighborhood affords them to other people, jobs, and amenities, according to a report on the study by The Atlantic.

East Oahu, Hawaii, is the study’s top desirable location, with households willing to sacrifice 25 percent more of their pay than the average American in order to live there. California cities such as Marin, San Mateo, San Francisco, Santa Cruz, San Jose, and Oakland follow closely behind East Oahu, as well as parts of Colorado and Washington State.

Source: “How Much Are You Willing to Pay to Live in America’s Best Neighborhoods?” The Atlantic CityLab (June 29, 2015)

5 Issues That Will Impact Real Estate

5 Issues That Will Impact Real Estate. Image courtesy of Idea go / FreeDigitalPhotos.net

Demographic shifts from retiring baby boomers and the increase of millennials buying homes will have the most profound impact on the real estate industry in the coming years, according to a new survey of real estate professionals from the Counselors of Real Estate. CRE’s survey identifies the issues that will have the most significant impact on real estate near and long-term.

“This list reflects a higher degree of economic uncertainty than in years past,” says CRE chair Noah D. Shlaes. “Anticipation of rising interest rates, continued currency devaluation, and excess capital flowing into the United States are all on the minds of our membership. Combine this with a growing wage gap and major changes in demographics, and we’ve got a lot to think about this year.”

Issues topping the list include:

1. Demographic shifts: Retiring baby boomers and the population surge of  potential millennial home buyers are expected to have a big impact on real estate. For example, for seniors, housing needs will shift to homes where they can age-in-place or they may search for downsized homes, senior communities or assisted living. Millennials will be making choices on whether to buy or postpone buying and the location will have a big impact on their decision.

2. Excess capital supply:  U.S. real estate remains attractive to investors across the globe. “Funds continue to flow from outside the U.S. to purchase U.S. real estate,” BUILDER reports about the survey results. “The supply is driven by economies that have high savings rates, a shortage of mature financial markets and few safe assets. The investment rate is approaching record highs, presenting the potential for pressure on investments in the future.”

3. Rising interest rates: Interest rates have been near record lows, but are expected to rise later this year. An increase in interest rates could prompt an increase in short-term commercial development and slow home sales. However, if millennials get into the housing market before interest rates rise too much, they could help create a “second wind for the residential market,” BUILDER notes.

4. Global instability and currency devaluation: The U.S. dollar remains strong but the global economy is being affected by currency devaluation in many other countries, the report notes. Investment from foreign buyers helps to boost the U.S. housing market, but there is a risk if currency devaluation continues in other countries too.

5. Urbanization:  Young professionals as well as older generations are showing an increasing appetite for wanting to live in walkable communities in the city. On the commercial front, urban vertical shopping configurations are growing more popular. Also fueling the urbanization trend, greater corporate relocations have been occurring recently that are moving away from the suburbs to cities as companies try to lure more younger, urban professionals.

Source: “Top 10 Issues Affecting Real Estate Pros,” BUILDER (June 24, 2015)

Study Questions Home Efficiency Upgrades

Study Questions Home Efficiency Upgrades. Image courtesy of ponsulak / FreeDigitalPhotos.net

A new study makes a controversial finding: Home efficiency upgrades don’t equate to much energy savings over the long run.

The University of Chicago study analyzed a random sample of 30,000 low-income Michigan households that were eligible for an Energy Department home weatherization program. The study found that projected energy savings were 2.5 times greater than actual savings, but energy bills didn’t drop enough to pay for the initial cost of the upgrades.

“The models project much larger savings than are realized by home owners,” says Michael Greenstone, an energy economist and head of the Energy Policy Institute at the University of Chicago.

For example, the study found that home owners saw their energy use fall by 10 percent to 20 percent after the upgrades — which could net them $2,400 in energy expenses savings. But that is less than the $5,000 the upgrades cost to install, on average.

The study’s findings could undermine state efficiency programs and call into question long-held understanding of making existing homes energy efficient.

The study has not yet been reviewed by a panel of peers. Energy efficiency experts who were shown the study argue the authors’ conclusions about energy efficiency aren’t justified after a study of a single program in a single state and that was focused only on low-income households.

Steven Nadel, executive director of the American Council for an Energy-Efficient Economy, also argues that the study neglects to factor in other benefits of energy efficiency, including lower maintenance expenses, reducing the likelihood of missed utility payments, and a more comfortable home.

“Paying for the more efficient appliance is still always the best decision, for your pocket book and the environment, regardless of what this study says,” says Noah Horowitz, an efficiency expert and senior scientist at the Natural Resources Defense Council, who reviewed the study. “Nothing in this study contradicts the well-documented fact that energy efficiency is the cheapest, fastest and cleanest way to reduce climate change emissions.”

Source: “Study Says Many Home Efficiency Upgrades Don’t Pay Off,” The Associated Press (June 24, 2015)

More Renters May Be Stuck

More Renters May Be Stuck. Image courtesy of Stuart Miles / FreeDigitalPhotos.net

Millions of Americans may be unwillingly stuck in rental housing. The nation’s home ownership rate has plunged for eight years, currently down to 63.7 percent in the first quarter of this year from a peak of over 69 percent in 2004.

As the home ownership rate has fallen, the amount of rentals has soared, and so has the costs of renting. Last year, rents climbed at a 3.2 percent rate – double the pace of overall inflation.

Many renters may struggle to save in buying a home as rental costs continue to soar. The share of renters paying more than 30 percent of their income on rent – what is considered “cost burdened” – remains near record highs. Nearly half of all renters were in this category in 2013, according to a newly released report by Harvard University’s Joint Center for Housing Studies.

The number of new rental households has climbed by 770,000 annually since 2004, according to the report. Many of the people living in rentals were once home owners, who lost their homes to foreclosure and cannot yet qualify for credit to buy again yet.

The home ownership rate has dropped by the fastest rates among people in their late 30s to early 50s, according to the Joint Center’s report. Prior to the Great Recession, these age segments were in their prime home-buying years. But when the housing market dropped, many were left with little or no equity.

“People in their 40s and 50s were very hard hit by the housing crisis,” says Chris Herbert, managing director of Harvard’s housing center. “They’ve been a bit of a forgotten generation.”

Source: “More Americans Are Renting, and Paying More, as Homeownership Falls,” The New York Times (June 24, 2015)

Housing Outlook Remains Healthy

Housing Outlook Remains Healthy. Image courtesy of watcharakun / FreeDigitalPhotos.net

Cincinnati, Cleveland, and Chicago were singled out as the major housing markets with the healthiest outlooks in the nation, according to the latest reading of the Leading Index of Healthy Housing Markets (LIHHM), a report released by Nationwide that evaluates the healthy housing outlook of the U.S. and 400 metro areas.

Overall, the national index remains near its peak at a level over the break-even of 100, which suggests the housing market is healthy with little chance of a national housing downturn over the next year. The latest report showed that markets in the upper Midwest and Southeast were performing the best.

“The employment, household, mortgage market, and house price components of the national LIHHM remained positive with the latest available data,” according to the report. “Housing affordability at a national level is neither undervalued nor overvalued with little sign of a national house price bubble.”

The majority of metro areas are healthy, indicating that few regional housing markets are vulnerable to a housing downturn in the near term. However, Texas and Louisiana had the most negative outlook, with 75 percent of the negatively ranked metro areas in the country being in either of the two states. The report notes that Texas metro areas were down primarily because of overheated markets while Louisiana metros were down because of the impact of the sharp drop in oil prices on jobs and income growth.

Source: “Nationwide’s Health of Housing Market Report,” Nationwide.com (June 2015)