Increasing the Homeownership Rate as a Boost to the Economy

REALTORS® across Southwest Florida and throughout the United States are dedicated to promoting homeownership opportunities and the elimination of hurdles to achieving the American dream of owning a home.

“As REALTORS®, we work every day to help people realize the American Dream of owning their own home,” says 2017 Florida REALTORS® President Maria Wells.  “Opening the door to homeownership helps families find security and stability.  While buying a home is usually the biggest financial investment someone may make in their lifetime, it also offers a sense of place and community.  Our homes hold our hopes, our memories and our dreams for the future.”

Extending a long-standing tradition, President Donald Trump has declared June as National Homeownership Month and has announced his support to the goal of increasing the U.S. homeownership rate.  According to the declaration:  “For generations of Americans, owning a home has been an essential element in achieving the American Dream.  Homeownership is often the foundation of security and prosperity for families and communities and an enduring symbol of American freedom.  This month, we recommit to ensuring that hard-working Americans enjoy a fair chance at becoming homeowners.”

The continued recognition of June as National Homeownership Month inspires everyone within the real estate and housing industries to continue to promote homeownership as an important contributor to economic strength and to increase the number of homeowners, especially amongst minority groups.  According to the most recent United States Census data reported, the homeownership rate in the state of Florida for the first quarter of 2017 was 64.6 percent, while the homeownership rate for the entire nation was 63.6 percent for the same period of time. 

Wells impressed the fact that homeownership serves as a foundation for communities, instilling pride and a sense of belonging among individuals within the communities.  Research indicates that homeownership provides both tangible and intangible benefits to the economy, community and the individual homeowners. 

Recognition of homeownership first began as a week-long celebration in 1995, and was later extended to the entire month of June by President George W. Bush in 2002. 

Enabling Entry to Housing Market Through Downpayment Assistance and Tips

Out of the 902 closed sales for homes in the Naples area during April 2017, 65.3 percent were cash sales and 34.7 percent were conventional mortgage sales, according to the latest report released by the Naples Area Board of REALTORS® (NABOR®).  The March Market Report pointed out the history of cash sales in the area has dropped over the last several years and more buyers are using conventional mortgages for the purchase of their homes: 73 percent cash sales in March 2015, 67 percent for March 2016, and 64 percent for March 2015.  With a growing number of homebuyers turning to financing in order to purchase a home and a recent survey by real estate data provider Zillow reporting that more than two-thirds of renters consider setting aside money for a downpayment as the number one obstacle to entering the housing market, it is important for potential buyers to be aware of the options available to assist them in getting over the downpayment hurdle.

Here are some tips for potential homebuyers to consider in overcoming the downpayment hurdle include:

·      Consider beginning to save early on.

·      Carefully weigh loan options.

·      Look into lenders offering loans through government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which only require a 3 percent downpayment or loans offered through the Federal Housing Administration (FHA), which require a 3.5 percent downpayment.

·      Buyers who are U.S. Military Veterans, service members or residents of specific rural areas may not have a downpayment requirement at all, as the Department of Veterans Affairs and the U.S. Department of Agriculture have zero-downpayment loan programs available for qualified borrowers. 

·      Consider using gift money from relative or friends toward the downpayment amounts or retirement savings. 

·      A large number of downpayment assistance programs exist across the nation as well, for borrowers with low to moderate income, teachers, firefighters, and other public service positions.

With industry leaders indicating a vast and growing number of potential homebuyers are currently interested in entering the housing market, as well as a decreasing number of cash sales in the Naples area, an increasing number of buyers looking to finance the purchase of a home, and clearly expressed concerns about challenges in saving enough money for a downpayment, a clear analysis of all of the options available to potential homebuyers is timely and essential.   As the summer residential real estate season begins, potential homebuyers are encouraged to explore the many options available and carefully consider those options as far as requirements for qualification and what will best fit the individual current and future needs of each homebuyer.

Sellers Adjusting Pricing to Market Value in Southwest Florida Real Estate Market

The single-family housing market in Southwest Florida has continued to see sellers modifying their pricing to match current market value. These modifications to pricing to current market value have resulted in a decrease of the average median home prices in Southwest Florida and have helped to increase pending sales activity. This practice amongst home sellers in Southwest Florida is projected to continue and is expected to continue to boost sales activity in the area as we move forward through the remainder of 2017.

In contrast, the condominium market in Southwest Florida is still showing many units priced high and in need of price adjustments. This has had an impact on the average days on the market for condominium homes. As summer approaches and seasonal buyers are expected to return to the area for the summer selling season, condominium homeowners are anticipated to make the price adjustments necessary to attract buyers who are looking for properties listed at fair market value versus overpriced units.

Housing market reports indicate the number of overall closed sales in the Bonita Springs-Estero area within Southwest Florida, including single-family homes and condos, increased to 2,989 units for the 12-month period ending in April 2017. This is compared to 2,965 units for the 12-month period ending in April 2016. Pending sales for April 2017 were at a 7 percent increase with 3,098 units when compared to 2,902 units in April 2016. Activity narrowed slightly for the Naples area, when compared to the strong end to the first quarter of 2017, as pending sales for the 12-months ending in April 2017 showed a 3 percent decrease. Closed sales showed a 4 percent decrease and inventory, in contrast, showed an 8 percent increase. Again, continued price adjustments and the beginning of the summer selling season are expected to boost the housing market in Southwest Florida in the coming months, offering a positive outlook for the area’s residential real estate market.

Home Sales Forecasted to Top Last Year’s Totals

Lawrence Yun, Chief Economist of the National Association of REALTORS® (NAR) provided his 2017 midyear forecast and was joined by Jonathan Spader, Senior Research Associate at the Joint Center for Housing Studies at Harvard University, and Mark Calabria, Chief Economist and Assistant to Vice President Mike Pence, in presenting at the 2017 REALTORS® Legislative Meetings & Trade Expo. Discussions included the ongoing strength of the United States job market combined with an upward trend in consumer confidence, and how these factors are expected to contribute to a forecasted 3.5% increase in existing home sales for 2017. 

Yun discussed the challenges presented by low inventory and high prices in some metro areas, while Spader discussed the homeownership rate and Calabria discussed the importance of productivity and the labor force participation rate in encouraging the growth of the economy.

The first quarter of this year represents the best quarterly existing sales pace in ten years with 5.62 million sales.  Yun states that he expects activity to remain on this path and finish the year at approximately 5.64 million.  Yun’s projected 5.64 million in sales would represent the best since 2006 (6.47 million) and 3.5 percent above the total number of existing sales for 2016.  “The housing market has exceeded expectations ever since the election, despite depressed inventory and higher mortgage rates,” says Yun.  “The combination of the stock market being at record highs, 16 million new jobs created since 2010, pent-up household formation and rising consumer confidence are giving more households the assurance and ability to purchase a home,” adds Yun.

Despite the fact that the number of home sales for the U.S. is at a decade high, Yun expresses his belief that the strong labor market should be encouraging an even higher number of sales.  Yun says, “There’s little doubt first-time buyer participation would improve and the homeownership rate would rise if there was simply more inventory.” 

Yun foresees new housing construction to increase by 8.4 percent to 1.27 million for this year, but this is still not quite sufficient to make up for the low number of new homes build in the last few years.  New single-family home sales are estimated to total approximately 620,000 for 2017, an increase of 8.4 percent from 2016. 

“There was a lot of uncertainty at the start of the year, but a very strong first quarter sets the stage for a modest sales increase compared to last year,” said Yun. 

Buyers of Second Homes Focus on Investment

 

Investment home sales conquered the second home market in 2016, with a total of 1.14 million units sold for 2016, according to the recently released Investment and Home Buyers Survey results, compiled by the National Association of REALTORS^® (NAR).  However, the number of purchases of vacations homes decreased dramatically by 21.6 percent with a total 721,000 units for 2016.

NAR Chief Economist Lawrence Yun says, “In several markets in the South and West – the two most popular destinations for vacation home buyers – home prices have soared in recent years because substantial buyer demand from strong job growth continues to outstrip the supply of homes for sale.”  “With fewer bargain-priced properties to choose from and a growing number of traditional buyers, finding a home for vacation purposes became more difficult and less affordable last year,” Yun adds.

According to Yun, vacation home sales are now 36 percent below their 2014 peak.  The median price for vacation homes was $200,000, representing a 4.2 increase from 2015.  The portion of all-cash purchases in this sector dropped from 38 percent in 2015 to 28 percent. 

The median price for investment homes was $155,000 for 2016, representing an 8 percent increase from 2015.  The portion of all-cash purchases in this sector remained the same, at 19 percent, from 2015 to 2016.

“Sales to individual investors reached their highest level since 2012 (1.20 million) as investors took advantage of record low mortgage rates and recognized the sizeable demand for renting in their market as renters struggle to become homeowners,” says Yun.  “The ability to generate rental income or remodel a home to put back on a market with tight inventory is giving investors increased confidence in their ability to see strong returns in their home purchase.”

According to the survey, 42 percent of investors purchased a property with the goal of generating rental income, while 16 percent of investors purchased a home to hold onto for potential price increases.  Forty-two percent of those who purchased vacation homes did so in order to use the home for a “family retreat” or vacation property, while 18 percent of those who purchased a vacation home did so for retirement.  A large number of both investment home and vacation home purchasers said they rented the property short-term (less than 30 days).

Grants and Programs Available to Assist First-Time Homebuyers

The tasks involved in purchasing a home can be very overwhelming, particularly for first time homebuyers. In addition to all of the forms and disclusures involved, all of the expenses involved can add up quickly and become daunting.  On the plus side, there are many grants and programs available to assist first-time homebuyers with this process. 

Some of the options available nationwide include FHA loans available through the Federal Housing Administration (FHA), an agency that operates within the U.S. Department of Housing and Urban Development (HUD), which insures the mortgage and lenders receive a layer of protection that will protect them from experiencing a loss if the borrower ends up defaulting on the mortgage.  FHA loans typically offer competitive interest rates, a reduced down payment, and lower closing costs. Borrowers with a credit score of 580 or higher could be eligible for a mortgage with a down payment as low as 3.5 percent.

Also, USDA loans provide a homebuyer assistance program of the U.S. Department of Agriculture focuses on residences in certain rural areas. Through this program, the borrower does not need to purchase or run a farm to be eligible, the USDA guarantees the loan, there may be no down payment required, and the loan payments are fixed. USDA loan program applicants with a credit score of 620 or higher typically receive streamlined processing.

Other programs available include:

·      VA loans through the U.S. Department of Veterans Affairs and this program assists service members, veterans and surviving spouses in the process of purchasing a home.

·      Good Neighbor Next Door, which is sponsored by HUD and focuses on providing housing aid for law enforcement officers, firefighters, emergency medical technicians and teachers.

·      Fannie Mae or Freddie Mac have a program through which they work with local lenders to offer mortgage options that benefit low- and moderate-income families.

·      Energy Efficient Mortgage is a program that allows one to add improvements to their home that will make it more environmentally friendly. The federal government supports Energy Efficient Mortgage loans by insuring them through FHA or VA programs.

Conversations Regarding Sustainable Homes Increasingly Significant

 

Sustainable features in homes are becoming a more important topic of conversation among real estate professionals, builders, homebuyers and sellers. The National Association of REALTORS^® (NAR) recent REALTORS^® and Sustainability report reveals over fifty percent of REALTORS^® affirm that real estate buyers and sellers are interested in home sustainability issues and practices.

"As consumers' interest in sustainability grows, Realtors understand the necessity of promoting sustainability in their real estate practice, such as marketing energy efficiency in property listings to homebuyers," says NAR President William E. Brown. "The goal of the NAR Sustainability Program is to provide leadership and strategies on topics of sustainability to benefit members, consumers and communities."

To accommodate the increasing consumer interest, more Multiple Listing Services (MLSs) are including data entry fields to identify a property's green features; 43 percent of respondents report their MLS has green data fields, and only 19 percent do not. Real estate professionals see great value in promoting energy efficiency features within listings, with seven out of 10 stating that they feel strongly about the benefits in promoting those features to potential homebuyers.

The sustainability survey asked participants about renewable energy and how they view the impact of renewable energy on the real estate market. 80 percent of real estate agents and brokers said that solar panels are currently available in their market; forty-two percent said solar panels increased the property value.

The home features that survey respondents said clients consider as very or somewhat important include a home's efficient use of lighting (50 percent), a smart/connected home (40 percent), green community features such as bike lanes and green spaces (37 percent), landscaping for water conservation (32 percent), and renewable energy systems such as solar and geothermal (23 percent).

When it comes to the sustainable neighborhood features that clients favor, 60 percent of survey respondents listed parks and outdoor recreation, 37 percent listed access to local food and nine percent listed recycling.

As conversations regarding sustainability issues and practices become more and more common and features for homes further advance technologically and with regard to accessibility, it will be fascinating to see how this dialogue progresses between real estate professionals, homebuilders, homebuyers, and sellers in the future.