MReport August 2019

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TH E M R EP O RT | 53 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 The Pendulum Swings The lack of affordability is making more residents choose renting over buying. D emand for homeownership is waning as more residents prefer renting over buying a home, according to the latest national index produced by the Florida Atlantic University (FAU) and Florida International University faculty. The report bases its data on the Beracha, Hardin & Johnson Buy vs. Rent (BH&J) Index. The Index's scores approaching one in- dicate very little chance for fami- lies that own to outperform those that rent and reinvest in terms of wealth creation. Scores approach- ing zero suggest indifference in terms of wealth accumulation between owning and building equity versus renting and reinvest- ing. Scores approaching -1 strongly favor homeownership to produce greater wealth for families. According to Ken H. Johnson, Ph.D., a real estate economist, and one of the creators of the BH&J Index, the current downward momentum is not surprising since the nation's housing market is entering "the late stages of the current housing cycle." Of the 23 metros tracked on the index, 19 are in rent territory. This means that, on average, an individual family in these cit- ies would be better off renting and reinvesting in a portfolio of stocks and bonds as opposed to building wealth through equity accumulation from homeowner- ship. "The opportunity to generate greater wealth by renting and re- investing puts downward pressure on the demand for homeowner- ship and prices should follow sooner rather than later," said Eli Beracha, Ph.D., real estate econo- mist, and co-creator of the index. The index indicated that markets experiencing dramatic to slight downward pressure on the demand for homeowner- ship are Dallas (.978); Denver (.867); Houston (.773); Seattle (.424); Pittsburgh (.414); Kansas City (.392); Miami (.349); Portland (.327); San Francisco (.311); Atlanta (.276); Los Angeles (.224); San Diego (.159); Philadelphia (.147); Minneapolis (.107); Honolulu (.076); St. Louis (.076); Boston (.041); Milwaukee (.030); and Cincinnati (.025). "For markets near zero, I have very little concern about future home prices," Johnson said. "Clearly, however, Dallas, Denver, and Houston are the canaries in the coal mine. As they go, so should the markets like Seattle, Pittsburgh, Kansas City, Miami, Portland, and San Francisco." Cleveland (-.124); Chicago (-.119); New York (-.079); and Detroit (-.007) are the only four metro areas remaining in buy territory according to the index. "All four of these areas are currently experiencing slight upward pressure on the demand for homeownership," Beracha said. "The coming peak in the hous- ing cycle should have very little impact on these markets." Regulations, Tariffs, and Affordable Housing NAHB gives insights into the factors that have impacted housing affordability. T he National Association of Home Builders (NAHB) reports that increasing regulatory costs, the shortage of construction workers, tariffs on $10 billion worth of building materials, and concerns over housing finance have impacted housing affordability. According to the report, regula- tions account for 25% of the price of a single-family home and 30% of the cost of a multi-family development. "Removing regulatory barriers that contribute to the increased costs of housing will pave the way to homeownership," said Greg Ugalde, Chairman, NAHB and a builder and developer from Torrington, Connecticut. "Home builders and the residential con- struction community are commit- ted to working with Congress to ensure homeownership is within reach of hard working families." The latest NAHB/Wells Fargo Housing Opportunity Index found that 61% of new and exist- ing homes were deemed afford- able. The current homeownership rate of 64.2% remains below the 25- year average of 66.3%, according to the U.S. Census Bureau's Housing Vacancy Survey. Homebuyers stated in an NAHB analysis that high home prices remain a barrier to home- ownership. Seventy-eight percent of buyers estimated they could afford fewer than half of the homes for sale in their markets. The NAHB states 53% of buyers seeking a home in Q1 2019 have been searching for three months or longer. The analysis found that seniors are most likely to be actively searching for a home at 56%, with 50% of millennials actively looking to buy a home. Baby boomers have the lowest share of people actively searching for a home at 41%. Potential buyers within Gen X came in at 42%. Despite affordability concerns, the NAHB states younger genera- tions are optimistic about finding a home. The report states that 23% of millennials, 22% of Gen X'ers and 20% of seniors expect house hunting to become easier in the future. Baby boomers (18%) were the least optimistic about the prospects of finding a new home. The NAHB also states about 20% of millennials have plans to purchase a home in the next year.

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