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TH E M R EP O RT | 51 O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST DATA A Question of Demand Why are sales of luxury homes dropping? S ales of homes priced at more than $2 million declined 16% year-over- year last quarter, marking the second-consecutive quarter of de- cline and the biggest drop in luxury sales since 2010, according to a Redfin report. Redfin compiles the data by tracking home sales in more than 1,000 U.S. cities, excluding New York City, and defines a home as "luxury" if it's among the top 5% most expensive homes sold in the quarter. The price of homes in the remaining 95% of the market rose 2.7% year-over-year to an average of $300,000 in the first quarter, continuing six straight years of increases. Declines in home sales, though, are not indicative of the available inventory. The report states that the amount of homes priced at more than $2 million increased for the fourth-consecutive quarter by 14%. The amount of luxury homes continues to rebound after supplies declined 10% in 2017. "Because homeowners can't deduct as much mortgage interest as they used to be able to, the calculus has changed when it comes to buying a home, especially an expensive one," said Daryl Fairweather, Chief Economist at Redfin. "Although the new mortgage rule applies to everyone in the country, high earners in states with high income taxes like California and Massachusetts saw their tax bills surge. Not only do the new rules make it less desirable to purchase a multi-million dollar home in high-tax states, it has also moti- vated some people—especially those with big incomes and big housing budgets—to consider moving to places like Florida, Washington, or Nevada, which have no state income tax." Homes priced at more than $2 million spent an average of 83 days on the market, compared to 69 days for homes priced un- der $2 million. The amount of homes sold above the listing price for luxury homes was just 1%, a steep drop from the 18% for non-luxury homes. The news isn't all bad for luxury home- owners, however, as prices for high-priced homes fell in just one-third of U.S. cities. Boston reported a 22.4% decline in luxury home prices in the first quarter. Other mar- kets that saw decreases were Newport Beach, California (-22.4%); Miami (-19.3%), San Jose, California (-2.7); and San Francisco (-0.3%). Two Florida cities—West Palm Beach and St. Petersburg—recorded the nation's biggest increases at 89.6% and 62.3%, respectively. Luxury home prices in West Palm Beach skyrocketed to more than $2.8 million. Millennials vs. The Housing Market Learn why the entry of more first-time buyers is likely to burden the market for starter homes. T he number of millenni- als entering the housing market is set to burden an already challenging market for first-time buyers, ac- cording to a new report by Zillow. Zillow states that 45 million people will reach the typical age for first-time buyers—34 years old—within the next decade, which is 3.1 million more than during the previous decade. There are currently 44.9 million Americans aged 24-33, or potential first-time buyers, compared to 41.8 million people between the ages of 35-44, which is a 7% increase. The area of concern, according to Zillow, is the shrinking inven- tory and higher prices of homes, especially in the least expensive third of homes, which are the homes most likely to be sought by first-time buyers. Zillow states that these homes' values increased 57.3% over the past five years, de- spite inventory dropping 23.2%. "The potential first-time buyer bulge, without inventory to meet it, suggests that the typical age of first-time buyers will continue to be pushed further and further out," said Skylar Olsen, Director of Economic Research at Zillow. "The rate of single-family con- struction is still behind the pace we experienced in the 1990s, and without an increase in truly new supply, would-be first-time buyers will instead persist in the rental market." Olsen added, "Buyers making the transition from renting to homeownership helps ease rental demand, which limits rent-price growth. If this coming wave of buyers have to compete fiercely for homes to purchase, that could drive up rent prices as well as home values." Two of the nation's least affordable markets, San Diego and Boston, are expected to see an al- most 20% increase over the next 10 years of potential first-time buyers. While Zillow is reporting that first-time buyers need 1.5 times longer to save for a down payment than they did 30 years ago, Ellie Mae released a study that found millennials are taking advantage of falling interest rates and quickly closing on loans. The average 30-year rate dropped to 4.75% in February and the average time to close all loans dropped to 40 days, marking the shortest closing period since February 2015. Millennials, overall, closed all loans two days faster month-over-month. For loans closed by millenials earlier this year, 68% were conventional while 28% were FHA.