Who Can Still Afford to Buy a Home?

The Mortgage Corner



That question of who can still afford to buy a home is up in the air, as we say, since home sales have been trending lower of late and there is still a housing shortage. MarketWatch’s Andrea Riquier believes housing sales peaked in 2018, dropping below combined sales of 6 million for the first time in two years, per her graph of existing and new-home sales, and won’t go higher this year—in the 11th year of the recovery from the housing bubble.

Sales are falling because Ms. Riquier maintains home buying is still out of the price ranges most young adults can afford for various reasons, including a low inventory of affordable homes for sale, and lower earning potential than in past recoveries for young adults with college degrees still digging out from under student loans.

Yet total existing-home sales’, https://www.nar.realtor/existing-home-sales, completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 2.5 percent from April to a seasonally adjusted annual rate of 5.34 million in May, per the NAR.

Total sales are down 1.1 percent from a year ago (5.40 million in May 2018), but when combined with surging May new-home sales of 673,000 reported by the Census Bureau, the total is 6.01 million. So total sales are rising again; maybe because of the recent interest rate decline to post-recession lows?   

NAR chief economist Lawrence Yun said the 2.5 percent jump shows that consumers are eager to take advantage of the favorable conditions. “The purchasing power to buy a home has been bolstered by falling mortgage rates, and buyers are responding.”

Rates are down because the 10-year Treasury bond benchmark yield that most lenders use to set mortgage rates has fallen to 2 percent at this writing, which puts it back to yields that prevailed during the Great Recession, and the 30-year fixed conforming mortgage is holding at 3.50 percent for less than one origination point.

But can builders keep up with the declining inventory of homes for sale? Residential investment has fallen for five straight quarters though the second quarter for starts is up overall with the new May report.



Privately‐owned housing starts in May were at a seasonally adjusted annual rate of 1,269,000, said the Census Bureau. This is 0.9 percent (±12.9 percent) below the revised April estimate of 1,281,000 and is 4.7 percent (±8.9 percent) below the May 2018 rate of 1,332,000. Single‐family housing starts in May were at a rate of 820,000; this is 6.4 percent (±9.5 percent) below the revised April figure of 876,000.

Single-family homes starts were actually very weak in May, in other words, for a 12.5 percent year-on-year decline, as I said. Multi-units, in contrast, are up a yearly 13.7 percent at a 449,000 rate.

So it really looks like more new households are opting to rent, even with record-low interest rates. What else can they do with fewer purchasing options? One problem highlighted by Ms. Riquier is current homeowners are staying longer in their residence, thus reducing the housing supply—up to 10 years in recent surveys, says Riquier, vs. staying put for the more normal average 4 years before moving on..

It sounds like we need those record-low interest rates to keep the housing market alive. All the predictions are they could even go lower this year, but for how long?

Harlan Green © 2019

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
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