MReport November 2019

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M R EP O RT | 49 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 ORIGINATION Holding off on Homeownership Renting of buying is becoming a choice, according to analysis, even among people who have money for a down payment. A ccording to the Cen- sus Bureau's Quarterly Starts and Comple- tions by Purpose and Design, there were 11,000 single- family built-for-rent starts for Q2 2019. Speaking to NPR, Josh Hartmann, CEO of built-for-rent developer NexMetro Communi- ties, stated that many of these renters in the single-family built- for-rent space are not families losing homes to fore- closure wouldn't want to go back to renting apartments, like he expected originally. "What we were shocked to find out was it was people that had great cred- it, they had money for down payments, they had great in- comes but they just didn't want to own a home," Hartmann said. "They were a lifestyle renter, renter by choice." NexMetro has built 2,800 built-for- rent homes so far in Colorado, Arizona, and Texas, which fill up quickly with a mix of renters, including aging baby boomers and millennials. However, William Wheaton, a housing economist at MIT, notes that "owning still makes much more sense." "If prices continue to rise like they have in Denver, buying in Denver will be a money tree," Wheaton told NPR. "But even if you're a very cautious and say, 'No, no, no, they're not going to continue to rise a lot, they'll inch up a few percentage points each year' over five or 10 years, that adds up to a sizable nest egg. And that's what you're giving up by renting." Hartmann said he too hopes more young people buy homes and build equity, though renting by choice is increas- ing. According to a post on the National Association of Home Builders' (NAHB's) Best in American Living blog, renting by choice–instead of owning outright–is becoming increas- ingly popular among millennials. The blog said that this was where newly constructed built for-rent single- family homes came into the picture. These homes, ac- cording to the blog, present millenni- als "with a terrific opportunity to live the American dream–without the additional responsibilities and stress of homeownership." The blog indicated that one of the key reasons for the rise of these built-for-rent homes was diminishing affordability. The post, written by BSB Design, said that transitioning from a multifamily property to a single-family home was a "move- up" solution for families that desired "to have the flexibility to travel, live a low maintenance life- style, or avoid financial burdens." Homebuyers Feeling the Burden of Medical, Student Debt Skyrocketing college costs are causing an increasing number of potential homebuyers to delay buying a home. Z illow's fourth Annual Group Report on Con- sumer Housing Trends found that prospective home buyers with medical debt are more likely to be denied a mortgage, while those with stu- dent debt put off buying a home. The report adds that more than two-thirds of renters have debt, and approximately a quarter of renters and homebuyers said their debt caused them to be denied for either rental agreement or a mortgage. Zillow found that 16% of all buyers had medical debt while 20% carried student loan debt. Denial of a rental agreement or a mortgage is most common for those with medical debt. Forty- four percent of homeowners and two-thirds of renters with medical debt say they couldn't cover an unforeseen $1,000 expense—com- pared to half of all renters and one-fifth of homeowners. According to the report, 39% of buyers said student debt led to a delay in buying a home, and also impacts how much they can put down, affecting budgets for decades. "Two-thirds of buyers with any kind of debt put down less than 20% when they secure a mortgage, compared with 40% of buyers without debt," the report says. "The share is even higher (76%) for buyers with student debt. Putting down less than 20%, while fairly common, not only increases monthly payments but also can lead to added expenses if a lender requires private mortgage insurance or other upfront fees to compensate for the added risk." Additionally, 68% of buyers with debt said they have made at least one financial sacrifice to afford homeownership, which is significantly higher than the 39% of buyers without debt. The most common lifestyle change was reducing spending on entertainment, picking up a second job, cutting back on vaca- tions, and decreasing expenses on technology. Also, those in debt are more likely to go over their homebuying budgets. "When we focus on low unemployment and the strong economy, we often forget that in many ways the rising costs of life can erode most of those gains," said Skylar Olsen, Zillow's Director of Economic Research. "Health care has never been more expensive. Getting a college degree, a path more likely to lead to economic success for those able to get through it, has never been more expensive. U.S. housing values and rents have never been more expensive. "While incomes, both at the high and low end, are growing, the pace hasn't kept up with those crucial life expenses. That's fact, and Americans are feeling it." "What we were shocked to find out was it was people that had great credit, they had money for down payments, they had great incomes but they just didn't want to own a home." —Josh Hartmann, CEO, NexMetro Communities

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