Tags: home | housing | real estate | Millennials

Realtor.com Economist: First-Time Buyers Will Boost Housing Market

By    |   Wednesday, 25 February 2015 06:00 AM

First-time home buyers — a vanished species after the 2008 financial meltdown — will finally make a strong comeback appearance in 2015, Realtor.com's chief economist says.

Realtor.com’s Jonathan Smoke expects lower unemployment rates and looser mortgage standards should team up to bring his prediction to reality this year.

“With these factors on their side, I expect millennials to represent more than two-thirds of all new households over the next decade. And 25 to 34-year-olds, in particular, will drive as much as half of all new home sales this year,” he wrote in a column for Fortune.

Smoke noted the share of first-time buyers has been stuck near 30 percent in recent years, down from its historical average of 40 percent to 50 percent.

“Part of what is needed to support that growth is already happening — namely, improvements in access to mortgage credit and new affordable low down payment alternatives.”

The jobless rate among the millennial group of 25 to 34-year-olds has dropped from its recession high of 10.6 percent to 5.9 percent, Smoke said. Mortgage insurance premiums have also fallen, which can add up to as much as 5 percent of income in some areas. The lower insurance costs could help more households fall within qualification ratios on lower down payment loans, he predicted.

“Millennials are the largest generation so far, and they impact America’s housing market in big ways.” Smoke said.

If the millennials regain their traditional 5 percent purchase rate, it would hike home sales by more than 15 percent, and would represent a share of 40 percent of all domestic home sales, he said.

“That increase would get the U.S. back to normal levels of home sales in both existing and new home sales.”

The Wall Street Journal predicted
recent warmer weather in some Western states could help offset slower home sales in the East, which has been beset by a winter deep-freeze.

The Journal reported “expectations that the Federal Reserve will raise interest rates later this year could also contribute to a spring thaw, as buyers look to lock in loans before that.

“Another tailwind is likely to be easier lending conditions. The Mortgage Bankers Association’s credit-availability index showed improvement in January.”

HousingWire reported that a recent downleg in mortgage applications is causing some analysts to fret.

Chris Flanagan, a housing analyst at Bank of America/Merrill Lynch, has concluded that strength in the labor market should lead to a mid-year rate hike by the Fed, but he doesn’t expect that strength translating into higher demand for purchase mortgages, HousingWire said.

“This leads us to reiterate the view we held for most of 2014: housing is not strong enough to absorb meaningfully higher long-term interest rates, including mortgage rates. As a result, we believe longer-term rates remain biased to the downside, even from today's current low levels,” said Flanagan.

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First-time home buyers - a vanished species after the 2008 financial meltdown - will finally make a strong comeback appearance in 2015, Realtor.com's chief economist says.
home, housing, real estate, Millennials
Wednesday, 25 February 2015 06:00 AM
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