[REN #386] News Brief: Easier Construction Loans and Top Housing Trends

picture of calendar open to November and coffee mug for Real Estate News for Investors Podcast Episode #386

In this week’s Real Estate News in Brief… what Fannie Mae is doing to make it easier to build homes, where homes are the most and least affordable, and the top five latest trends affecting the housing market.


 

Economic News

There isn’t much economic news to report from this past week, except for the latest reading on consumer sentiment. The University of Michigan’s survey dropped an unexpected 3 points in November, and shows that consumers are feeling less optimistic about the economy. Economists had expected it to remain unchanged at 100.7, but it fell to 97.8. CNBC reports that the drop is due to concern about what will happen “next” year, including inflation expectations and higher interest rates.

Interest Rates

Mortgage interest rates took a slight dip last week as they continue to idle below the 4% mark. Freddie Mac reports that the 30-year fixed-rate mortgage was 3.9%. The 10-year Treasury yield fell about 7 basis points which could be a sign of another slight dip in mortgage rates next week.

Other News Making Headlines

 

Easier, Cheaper Construction Loans

Fannie Mae is hoping to ease the housing affordability crisis with a new construction loan program. Bloomberg reports that the plan isn’t finalized yet, but the mortgage-financing giant is working on a series of pilot programs that could make it easier and less expensive to get construction loans for new homes.

The new plan would make it possible for lenders to sell a loan to Fannie as soon as construction breaks ground, but the owner wouldn’t have to start making payments until the home is finished. The way it works now, lenders agree to pay for the construction but the loan isn’t financed and sold to Fannie until the home is finished. Lenders often avoid that kind of risk, so this new plan could make construction loans easier to get and potentially cheaper.

North American Home Affordability

When it comes to housing affordability, you might think New York City would put the biggest strain on your wallet. But, a survey conducted by Point2Homes shows the least affordable city is not even in the U.S. It’s Vancouver, Canada, where the median price of a home is $1.1 million and the median family income is close to $64,000. New York is second on the list however, and San Francisco is third(2).

The most affordable city is Detroit. If you own a home there and spend all the money you make as a median-wage worker, you can pay off your home in just 1.8 years.

The survey is fascinating because it includes all the major cities in the U.S., Canada, and Mexico, which is great for people thinking about living north or south of our borders. It also balances home prices with wages to give you a better reading on affordability, and how fast you can pay off a mortgage based on your paycheck.

High Prices Kill Dreams of Homeownership

Another study by Dutch bank ING found that almost half of Americans and Europeans have given up the idea of homeownership. It shows that 45% of U.S. consumers and 56% of those in Britain and Germany don’t think they’ll ever be able to afford a home(3).

In addition to high home prices, many people have doubts about employment. The survey shows respondents are struggling with low wages, and economies driven by short-term contracts or freelance work. That’s put homeownership out of reach for some people, although a large percentage of people still “want” to own a home. They believe it’s a smart thing to do financially, and also a sign of success.

Demographic Trends

It’s always good to keep ahead of real estate trends, and John Burns Real Estate Consulting has identified several changes in the housing market over the last 12 months(4).

  1. More and more people are living with strangers, as the modern day “boarding house” comes into play. We call it “shared living” today, and it’s a phenomenon that’s helping mostly younger folks afford to live in expensive cities.
  2. More people are renting. We already knew that, but Burns is predicting that homeownership will go even lower because more people are wanting cash from the sale of their homes, are finding the mortgage interest deduction is not a big tax savings, or they want the freedom to move to new places.
  3. More developers are building homes to “rent” and have found that in some markets, the yields are excellent.
  4. Driverless cars haven’t gone mainstream yet, but they are already influencing future plans for development. Among those changes is the idea that fewer people will drive, will live farther from big cities, and won’t need garages. Seniors may also choose to live in their homes longer which would lessen the demand for assisted living.
  5. Experiences are more important than possessions, including cars and homes. And when it comes to buying homes, more and more people prefer smaller homes near places that have interesting things to do.

Links:

(1) Consumer Sentiment: CNBC

(2) Point2Homes Survey

(3) ING Study

(4) Real Estate Trends: John Burns Real Estate Consulting

 

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