Wednesday, October 14, 2015 / by Anthony Dazet
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on October 14, 2015 at 7:07 AM, updated October 14, 2015 at 11:39 AM
Recent home shoppers know it's a sellers' market, not only in New Orleans but also throughout the United States. The lack of existing inventory and new construction means buyers don't have much bargaining power, especially in popular neighborhoods.
These competitive conditions are forcing an increasing number of prospective buyers to stay out of the market, opting instead to rent or remain in their current home rather than upgrading. First-time buyers accounted for 23 percent of U.S. home purchases in 2014, down from 26 percent in 2010.
These were among the trends Paul Bishop noted in his presentation Monday (Oct. 12) at the fifth annual Economic and Real Estate Forecast Symposium. The vice president of research for the National Association of Realtors took part in the two-day event at Loyola University, which the New Orleans Metropolitan Association of Realtors, its Commercial Investment Division and the local chapter of Certified Commercial Investment Member Institute hold each year as continuing education for their professionals.
Armed with numbers showing 10-year trends for home buying in the U.S., Bishop pointed toward what the future holds -- while stopping short of making firm predictions -- for home buying.
1. Household incomes head downward
The median household income in the Louisiana has decreased since 2005, following the national trend. And if families are making less money, they are less likely to spend it on housing -- whether that's renting or buying.
|Median household income|
|U.S. Census Bureau|
"There's really a concern that younger households aren't on a career path that will lead them toward home buying ... that they are making far less than they expected," Bishop said.
2. Home construction down, apartments up
If you insist on buying a new home, be prepared to look harder and pay more. From 1997 to 2006, an average of 1.4 million new homes were constructed each year. That pace has slowed to less than 800,000. The trend is particularly acute in the New Orleans market, where there are very few large-scale, single-family developments being built from the ground up.
Meanwhile, new apartment construction has been on a tear. Heading into the recession, there were an average of 350,000 multifamily construction projects starts. That number fell below 100,000 in 2010 but will exceed 450,000 this year. These rental units give another new housing option to those who might not be able to find the home they want to buy, Bishop said.
3. Gap grows between new and existing home prices
Back in 2005, the average U.S. new home price was $21,300 more than the average existing home, according to the National Association of Realtors. This year, that gap has grown to $74,500.
Bishop says more new homes would help shrink that difference, but there isn't widespread positive sentiment among homebuilders to add the inventory needed.
4. Far fewer foreclosure and short sales
One silver lining of the mortgage sector meltdown was that it the widespread defaults and foreclosures provided a new avenue to first-time home homebuyers and those looking to upgrade at a discount.
With each passing year, fewer of these listings remain on the market. They accounted for less than 10 percent of all sales in 2014, according to the Mortgage Bankers Association.
5. Debt limits what buyers can afford
A National Association of Realtors survey asked renters why they didn't own a home. The largest portion, 42 percent, said they couldn't afford it.
When homebuyers were asked what delayed their saving for a down payment, 57 percent of first-time buyers pointed to student loan debt. For repeat buyers, 58 percent said it was their credit card debt.
6. Mortgage rates expected to increase
Most real estate and banking types expect interest rates for mortgages to climb slightly in 2016. Following several months of inaction, forecasters believe the Federal Reserve will probably adjust the benchmark lending rate, resulting in a corresponding increase for consumer loans.
Bishop expects the rate for a 30-year mortgage to land around 4.6 percent by the end of next year. The current national average is 3.95 percent, with the range in New Orleans reaching from 3.63 percent to 4.17 percent, according to Bankrate.com.
While that's still relatively cheap compared with double-digit rates of the 1980s, it still represents an added expense for buyers whose resources are already stretched thin.