January 2016 - Out of the Woods

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56 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ANALYTICS THE LATEST 56 | TH E M R EP O RT Buying in the 'Burbs Housing affordability (or lack thereof) will drive first-time buyers to suburbs, Zillow contends. F irst-time homebuyers may want to turn their attentions toward sub- urbs in 2016. As home prices are showing no signs of slowing down, affordability becomes a larger issue when purchasing a home. Housing affordability, which is expected to lead 2016 housing trends, will be a major bump in the road for potential first-time homebuyers in the next year. Meanwhile, fewer wallet-friendly options near city centers will make the suburbs appear more desirable to consumers, a report from Zillow showed. In addition, Zillow reported that high rents will also pose an issue in 2016, forcing more young renters to hold off on purchasing a home for a longer period of time. "Rents will continue to increase at a brisk rate in 2016, but many potential first-time buyers are living in hot markets where buy - ing a home is really expensive," said Dr. Svenja Gudell, Zillow's chief economist. "In 2016, we'll start to see more people in hot coastal markets forced to move farther from the core of the city to find housing. When they get there, they'll be looking for amenity-rich suburbs—mini-cities, with walk - able cores and an urban feel." Dr. Gudell added, "As rent- ers gradually transition into homeowners, the historically low homeownership rate should stop falling quite as quickly as it has been. However, the median age of first-time homebuyers—already the highest it has ever been at about 33—will climb higher. Millennials want to buy, but they are waiting longer than previous generations." Zillow also noted that the inter - est rate increase from the Federal Reserve could further reduce the mortgage affordability the market has been experiencing with his- torically low rates. This will make "some homeowners think twice about selling, and many of them will decide to remodel their current homes instead." According to Zillow, in 2016, the median age of first-time homebuy - ers will rise to new highs as millen- nials hold off on buying a home. In addition, home value growth is expected to surpass incomes in 2016, particularly among low-in - come Americans. The bottom third of all incomes for consumers will not be able to afford even the least expensive houses on the market. This year is also forecast to bring the least affordable median rents in history, Zillow says. Potential buyers will seek refuge in city outskirts, where there are walkable suburbs with an urban feel and good city access, as affordable city center housing declines. Zillow's latest Home Price Expectations Survey showed that more trhan 100 economic and housing experts predicted that home values will grow about 3.5 percent in 2016. Cash Sales Losing Sway AFTER PEAKING IN 2011, ALL- CASH DEALS ARE PRIMED TO REACH PRE-CRISIS LEVEL NEXT YEAR, WITH LAGGING REO INVENTORY PEGGED AS CAUSE. T he share of cash sales in the housing market con- tinues to decline, with the primary cause pointed at the decrease in REO properties. CoreLogic recently reported that cash sales occupied 31.7 percent of all home sales in August 2015, down more than 3 percentage points from 34.9 percent during the same period last year. Month-over- month, cash sales rose 0.8 percent. At their peak in January 2011, cash sales accounted for nearly half of all residential home sales in the United States (46.5 percent), CoreLogic noted. Since then, that percentage has steadily declined. However, before the crisis, cash sales averaged about one-fourth of all home sales, and at this rate, CoreLogic projects that this share should hit 25 percent once again by mid-2017. As has been the historical trend, REO sales made up the largest share of cash transactions at 57.9 percent in August 2015, followed by resales (31.1 percent), short sales (29 percent), and new home sales (15.5 percent), the report showed. Despite comprising more than half of all cash home sales, REO's share of all residential home sales remained low in August at 6 per - cent—about one-quarter off their peak in January 2011, when they accounted for about 23.9 percent of all home sales. Resales account for about 82 percent of all home sales and have the largest impact on the total cash sales share, ac - cording to CoreLogic.

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