Morning Briefing: First-time buyers facing increased shortage of affordable homes

by Steve Randall16 Dec 2016
First-time buyers facing increased shortage of affordable homes
America’s inventory of homes that are affordable for average first-time buyers is under pressure says a new report from Trulia.

It found that affordable inventory fell more than 12 per cent this quarter from a year earlier, and was at its lowest level since 2013. At the same time, new buyers needed an extra 1.9 per cent of their income to buy their home, making a total commitment of 38.5 per cent.

While overall inventory was down 9 per cent, starter homes inventory fell 12.1 per cent and trade-ups were down 12.9 per cent while premium home levels were down 5.6 per cent.

Coastal markets have seen the sharpest decline in affordability with Tacoma, Wash., Portland, Ore., Sacramento, Calif., Los Angeles, San Francisco, San Diego and Miami most pressured.

Trulia’s chief economist says that these areas may see improvement in 2017.

"As mortgage rates continue to trend upwards, homebuyers in the costly coastal housing markets in California and the Northeast may get some relief. Rising rates will likely cool the fierce competition in these markets where inventory has been tightening and affordability has worsened," Ralph McLaughlin said.

He added that despite continued tight inventory in 2017, he is cautiously optimistic about improvement in housing shortage, with the caveat that the trump administration’s policies could see increased demand without tackling affordability.
 
Builder confidence ends 2016 on a high
Builders are confident in the market for single-family homes as 2017 approaches.

The National Association of Home Builders/Wells Fargo Housing Market Index hit 70 this month, the highest level since July 2015, as a post-election bounce was led by a potential cutting of red tape by the new White House team.

“Though this significant increase in builder confidence could be considered an outlier, the fact remains that the economic fundamentals continue to look good for housing,” said NAHB Chief Economist Robert Dietz.
The three components of the index – sales conditions, sales expectations and buyer traffic – all ticked higher.
 
Mortgage rates up following Fed
As expected the Fed increased interest rates this week by 25 basis points and mortgage rates ended the week higher.

Freddie Mac’s Primary Mortgage Market Survey shows that the average rate for a 30-year FRM with an average 0.5 point was 4.16 per cent, up from 4.13 per cent a week ago.

Average 15-year FRMs with an average 0.5 point were up to 3.37 per cent from 3.36 per cent a week ago; and average 5-year ARMs with an average 0.4 point were up to 3.19 per cent from 3.17 per cent a week ago.

Although the Fed is expected to make another three interest rate hikes in 2017, Freddie’s chief economist Sean Becketti says nothing is certain.

"The consensus of the committee points to more rate hikes in 2017. However, the experience of this year combined with the policy uncertainty that accompanies a new Administration suggests a wait-and-see outlook,” he said.
 

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