Real Estate Information

Summit Real Estate Forum & Blog

Allison Simson

Blog

Displaying blog entries 1-10 of 491

Generational Insights: Millennials Lead in Home Buying

by List Hub

Buying and Selling Differences and Similarities Across Generations

For the fifth consecutive year, Millennials were the largest and most active generational group of home buyers, at 36%. Of these buyers, 65% were also first-time home buyers, with the Home Buyers and Sellers Generational Trends Report from the National Association of REALTORS® finding that this dominating group of buyers preferred living close to family and friends over being in close proximity to schools. With rising rent prices across the country, Millennials are much more motivated to seek out homeownership.

Generation X were the second largest group of homebuyers at 26%. Younger and older boomers and the silent generation collectively held 38% of the market.

Buying and Selling Generational Insights

While characteristics vary, there are several similarities across each generation:

  • All generations of buyers continue to rely on real estate professionals to help them buy and sell their home (great news for you!)
  • Across all generations, finding the right property was the most difficult step in the home buying process
  • Over 74% of buyers from all generations used the internet in their home search (What do they find when they search for an agent? Make sure your digital presence is up to snuff!)
  • Overall, buyers of all generations were very satisfied with their home buying process
  • For all generations, the most commonly cited reason for selling their home was that:
    • It was too small (16%)
    • They wanted to move closer to friends and family (14%)
    • They were relocating for work (11%)
  • Across all generations, 73% of all sellers sold their home in the same state as the home they recently purchased
  • 37% percent of all sellers offered incentives to attract buyers
  • Repeat sellers made up 66% of all sellers across all generations

Check out this infographic for more generational insights, and for additional statistics read the full 2018 report.

About the Generational Trends Report

Since 2013, the National Association of REALTORS® has used data from their annual Profile of Home Buyers and Sellers to develop the Home Buyers and Sellers Generational Trends Report. This report evaluates the generational differences and similarities of home buyers and sellers who purchased or sold a home within a 12 month period. Data for the 2018 report was collected between July 2016 and June 2017 and grouped surveyed generations as:

  • Millennials (ages 37 and under)
  • Generation X (ages 38-52)
  • Younger boomers (ages 53-61)
  • Older boomers (ages 62-70)
  • The Silent Generation (ages 71-91)

Over the next five years, home prices are expected to appreciate, on average, by 3.6% per year and to grow by 18.2% cumulatively, according to Pulsenomics’ most recent Home Price Expectation Survey.

So, what does this mean for homeowners and their equity position?

As an example, let’s assume a young couple purchased and closed on a $250,000 home this January. If we only look at the projected increase in the price of that home, how much equity will they earn over the next 5 years?

Since the experts predict that home prices will increase by 5.0% in 2018, the young homeowners will have gained $12,500 in equity in just one year.

Over a five-year period, their equity will increase by over $48,000! This figure does not even take into account their monthly principal mortgage payments. In many cases, home equity is one of the largest portions of a family’s overall net worth.

Bottom Line

Not only is homeownership something to be proud of, but it also offers you and your family the ability to build equity you can borrow against in the future. If you are ready and willing to buy, find out if you are able to today!

In many markets across the country, the number of buyers searching for their dream homes greatly outnumbers the number of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.

Even if you are in a market that is not as competitive, understanding your budget will give you the confidence of knowing if your dream home is within your reach.

Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website:

“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”

One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”

Freddie Mac describes the ‘4 Cs’ that help determine the amount you will be qualified to borrow:

Capacity: Your current and future ability to make your payments
Capital or cash reserves: The money, savings, and investments you have that can be sold quickly for cash
Collateral: The home, or type of home, that you would like to purchase
Credit: Your history of paying bills and other debts on time

Getting pre-approved is one of many steps that will show home sellers that you are serious about buying, and it often helps speed up the process once your offer has been accepted.

Bottom Line

Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so.

There is no doubt that the price of a home in most regions of the country is greater now than at any time in history. However, when we look at the cost of a home, it is cheaper to own today than it has been historically.

The Difference Between PRICE and COST

The price of a home is the dollar amount you and the seller agree to at the time of purchase. The cost of a home is the monthly expense you pay for your mortgage payment.

To accurately compare costs in different time periods, we must look at home prices, mortgage rates, and wages during each period. Home prices were less expensive years ago, but paychecks were also smaller and mortgage rates were much higher (the average mortgage interest rate in 1988 was 10.34%).

The best way to measure the COST of a home is to determine what percentage of income is necessary to buy a home at the time. That would take into account the price of the home, the mortgage interest rate and wages at the time.

Zillow just released research that examined home costs using this formula. The research compares the historic percentage of income necessary to afford a mortgage to the percentage needed today. It also revealed the cost if mortgage rates continue to rise as experts are predicting. Here is a graph of their findings*:

Rates would need to jump to 7% in order for the percentage of necessary income to be greater than historic norms.

Bottom Line

Whether you are a homeowner considering selling your current house and moving up to the home of your dreams, or a first-time buyer trying to purchase your first home, it’s a great time to move forward.

*Assumptions in the Zillow report: Buyer puts 20% down, takes out a conforming, 30-year fixed-rate mortgage at rates prevailing at the time, earns the median household income, and is buying a median-valued home.

How do you select the members of your team who are going to help make your dream of owning a home a reality? What should you be looking for? How do you know if you’ve found the right agent or lender?

The most important characteristic that you should be looking for in your agent is someone who is going to take the time to really educate you on the choices available to you and your ability to buy in today’s market.

As the financial guru Dave Ramsey advises:

“When getting help with money, whether it’s insurance, real estate or investments, you should always look for someone with the heart of a teacher, not the heart of a salesman.”

Do your research. Ask your friends and family for recommendations of professionals they’ve worked with in the past and have had good experiences with.

Look for members of your team who will be honest and trustworthy; after all, you will be trusting them to help you make one of the biggest financial decisions of your life.

Whether this is your first or fifth time buying a home, you want to make sure that you have an agent who is going to have the tough conversations with you, not just the easy ones. If your offer isn’t accepted by the seller, or they think that there may be something wrong with the home that you’ve fallen in love with, you would rather know what they think than make a costly mistake.

According to the Home Buyer and Seller Generational Trends Report:

“Buyers from all generations primarily wanted their agent’s help to find the right home to purchase. Buyers were also looking for help to negotiate the terms of sale and to help with price negotiations.” Additionally, “Help understanding the purchase process was most beneficial to buyers 37 years and younger at 75 percent.”

Look for someone to invest in your family’s future with you. You want an agent who isn’t focused on the transaction but is instead focused on helping you understand the process while helping you find your dream home.

Bottom Line

In this world of Google searches, where it seems like all the answers are just a mouse-click away, you need an agent who is going to educate you and share the information that you need to know before you even know you need it.

Interest rates hovered around 4% for the majority of 2017, which gave many buyers relief from rising home prices and helped with affordability. In the first quarter of 2018, rates have increased from 3.95% up to 4.45% and experts predict that rates will increase even more by the end of the year.

The rate you secure greatly impacts your monthly mortgage payment and the amount you will ultimately pay for your home. Don’t let the prediction that rates will increase stop you from purchasing your dream home this year.

Let’s take a look at a historical view of interest rates over the last 45 years.

 

Bottom Line

Be thankful that you can still get a better interest rate than your older brother or sister did ten years ago, a lower rate than your parents did twenty years ago, and a better rate than your grandparents did forty years ago.

Recently, Freddie Mac published an Insight Report titled Nowhere to go but up? How increasing mortgage rates could affect housing. The report focused on the impact the projected rise in mortgage rates might have on the housing market this year.

Many believe that an increase in mortgage rates will cause a slowdown in purchases which would, in turn, lead to a fall in house values. Ultimately, however, prices are determined by supply and demand and while rising mortgage rates may slow demand, they also affect supply. From the report:

 “For current homeowners, the decision to buy a new home is typically linked to their decision to sell their current home… Because of this link, the financing costs of the existing mortgage are part of the homeowner’s decision of whether and when to move.

Once financing costs for a new mortgage rise above the rate borrowers are paying for their current mortgage, borrowers would have to give up below-market financing to sell their home.

Instead, they may choose to delay both the sale of their existing home and the purchase of a new home to maintain the advantageous financing.”

The Freddie Mac report, in acknowledging this situation, concluded that prices are not adversely impacted by higher mortgage rates. They explained:

“While there is a drop in the demand for homes, there is an associated drop in the supply of homes from the link between the selling and buying decisions. As both supply and demand move together in this way they have offsetting effects on price—lower demand decreases price and lower supply increases price.

They went on to reveal that the Freddie Mac National House Price Index is…

“…unresponsive to movements in interest rates. In the current housing market, the driving force behind the increase in prices is a low supply of both new and existing homes combined with historically low rates. As mortgage rates increase, the demand for home purchases will likely remain strong relative to the constrained supply and continue to put upward pressure on home prices.”

The following graph, based on data from the report, reveals what happened to home prices the last six times mortgage rates rose by at least 1%.

Bottom Line

Whether you are a move-up buyer or first-time buyer, waiting to purchase your next home based on the belief that prices will fall because of rising mortgage rates makes no sense.

 

If you are considering selling your current home, to either move up to a larger home or into a home in an area that better suits your current family needs, great news was just revealed.

 

Last week, Trulia posted a blog, Not Your Father’s Housing Market, which examined home affordability over the last 40+ years (1975-2016). Their research revealed that:

“Nationally, homes are just about the most affordable they’ve been in the last 40 years… the median household could afford a home 1.5 times more expensive than the median home price. In 1980, the median household could only afford about 3/4 of the median home price.

Despite relatively stagnant incomes, affordability has grown due to the sharp drop in mortgage rates over the last 30 years – from a high of over 16% in the 1980s to under 4% by 2016.

Of the nation’s 100 largest metros, only Miami became unaffordable between 1990 and 2016. Meanwhile, 22 metros have flipped from being unaffordable to becoming affordable in that same time frame.”

Here is a graph showing the Affordability Index compared to the 40-year average:

The graph shows that housing affordability is better now than at any other time in the last forty years, except during the housing crash last decade.

(Remember that during the crash you could purchase distressed properties – foreclosures and short sales – at 20-50% discounts.)

There is no doubt that with home prices and mortgage rates on the rise, the affordability index will continue to fall. That is why if you are thinking of moving up, you probably shouldn’t wait.

Bottom Line

If you have held off on moving up to your family’s dream home because you were hoping to time the market, that time has come.

The Frisco Town Council is considering an overhaul of its short-term rental regulations after receiving estimates that only half of town properties listed on sites like Airbnb and Homeaway are in compliance with current licensing rules.

The most likely change, which could take effect by November, would scrap "umbrella licensing," which allows property management companies to list their entire short-term rental portfolios under a single license. That leaves thousands of revenue dollars on the table and prevents the town from precisely monitoring STR numbers.

A recent third-party analysis found approximately 850 short-term rental listings in Frisco, but only 237 active vacation rental licenses — 25 of which were umbrella licenses. Town staff estimate that even if umbrella licenses account for 200 units, the town has still only achieved a 50 percent compliance rate.

"We've known about this for a couple years, we haven't put the resources into it, but I think now we need to get more staff involved and start looking at it pretty closely," Frisco Mayor Gary Wilkinson said during a council work session on Tuesday.

More stringent measures like capping STRs in town are on the table, but council seemed more inclined to strengthen and better enforce the current licensing system rather than strictly curtails rentals. More public hearings will precede any rule changes, council said.

There are plenty of benefits to short-term rentals, which keep the lights on in town and generate foot traffic on Main Street. And while recent tax revenue data suggest they may be taking a bite out of the hotel business, lodging isn't necessarily a zero-sum game. Renting out a spare room can also help local homeowners stay afloat financially.

Perhaps the most important question for short-term rentals, however, is their impact on housing for locals. While STRs have taken on a sort of symbolism for residents who chafe at the lack of long-term housing options, their actual impact on the rental market is unclear.

"Do we know that, if we limit short-term rentals, those owners are going to turn them into long-term rentals or just sit vacant?" councilman Rick Ihnken asked. "I don't know if we can get that answer, but that's the big unknown for now."

If owners can make more money renting to vacationers day-to-day, the thinking goes, they're less likely to lease their units to locals year round. But testing that theory is almost impossible. Historical data are lacking or incomplete, and there are a slew of factors influencing how owners choose to make money off their properties.

"Impacts on long-term employee housing supply are incredibly difficult to quantify as historical data sets are unavailable as to how many units were once available for long-term rent, how many of those units were actually rented by local employees, and how many of those units may have converted to short-term," Frisco town staff noted in a report to council.

Academic research indicates that short-term rentals can limit local housing. One study by an affordable housing advocacy group found that STRs reduced New York City's housing stock by 10 percent. A paper published in the Harvard Law and Policy Review similarly found that STRs were exacerbating Los Angeles' housing crisis.

Frisco, of course, is no coastal metropolis, and it's unclear how STRs might impact the rental market in a town where roughly 70 percent of properties are second homes.

Breckenridge, like all of Summit County, has a high proportion of second homes as well. In 2016, the town commissioned a study that found STRs had a "significant" impact on local housing, reducing the available stock while increasing the demand for workers. The findings, however, were approximate and limited by data availability.

Nick VanDer Sluis, who lives in Denver but rents two condos in Breckenridge short-term, bought his first unit four years ago to avoid Interstate 70 traffic. Renting it out on Airbnb allowed him to use it whenever he liked while still making money off of it, something he couldn't do with full-time tenants.

Breckenridge is not considering new regulations. However, Sluis said that if he were dis-incentivized to rent short-term — perhaps through a cap system that made licenses expensive — he would probably sell his units rather than rent them long-term.

"It's a two-fold problem," he said. "There's a shortage of affordable housing but there's also a shortage of hotels and rooms to rent to drive the industry there. So that's a tough call. If you start limiting short-terms, you're helping one market and hurting another."

Paty Frost, who also lives in Denver and rents a unit in Breckenridge short-term, also enjoys the flexibility of Airbnb, which allows her to bring in some extra money when she isn't staying at her place.

"We haven't discussed doing long-term, so the economics of it wasn't even really part of the decision," she said. "We just wanted to still be able to use the place."

There are probably many owners like Sluis and Frost, whose units would be empty most of the year if they weren't being rented short-term. And while some units that might otherwise be rented to locals have certainly been converted to short-term, it's an elusive number.

One of the stated goals of the town's STR regulations is to "preserve and build Frisco's sense of community as a place where people live year round." But in a town with so many second homes, short-term renting may actually add life to blocks that might otherwise sit empty.

"Whether it's good or bad for neighborhoods, at least there are lights on in these communities and people going to our businesses," councilman Hunter Mortensen said. "I went for a walk with the dog today and walked by four driveways that had not been plowed all winter. To me, that's more of a concern than short-term rentals."

Displaying blog entries 1-10 of 491

Syndication

Categories

Archives

Share This Page

Contact Information

Photo of Summit Real Estate Real Estate
Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker