Editor’s note: This feature originally appeared in the July issue of MReport, out now.The success of the summer homebuying seasons depends on three factors: home prices, housing supply, and mortgage rates. However, there’s also a fourth factor in play this year—the rise of the first-time homebuyer.Statistics suggest that this year, the largest group of homebuyers will be those shopping for properties for the first time. According to data from the latest 2019 SCE Housing Survey by the Federal Reserve Bank of New York, renters are seriously contemplating becoming homebuyers and that not only did they perceive the access to mortgage credit “had loosened somewhat,” but the share of renters saying that getting a mortgage had become easy or very easy rose “above 21% for the first time since at least 2014.”Additionally, a recent study by First American found that more than half of all mortgage loans originated by government-sponsored enterprises are now for first-time homebuyers. However, traditional measures of affordability offer a somewhat misleading perspective for this demographic.“With the bulk of millennials turning 30 in 2020 and entering their prime homebuying age, millennial homebuyer demand is expected to continue to grow,” said Odeta Kushi, Deputy Chief Economist for First American. “That means the markets with the most promise are those most affordable for renters looking to purchase their first homes.”New Buyers Coming of AgeNearly 45 million people in the U.S. will reach the typical age for first-time homebuyers in the next 10 years, a recent study by Zillow pointed out. That is nearly 3.1 million more than the past decade.Giving insights into the profile of these buyers, Mark Palim, Deputy Chief Economist at Fannie Mae, said that the typical first-time homebuyer is approximately 35 years old when they purchase a home, younger than repeat borrowers, who tend to be between 40 and 46 years old.“First-time homebuyers typically take out smaller loan balances and buy homes within the lower price tiers,” Palim said.In 2018, the National Association of Realtors’ (NAR’s) Profile of Homebuyers and Sellers report gave the following snapshot of a typical homebuyer:The share of first-time buyers was 33%.They looked for homes that had a median purchase price of $250,000.Their household income averaged $91,600 annually.Eighty-two percent of these buyers purchased a single-family home and could afford a median down payment of 13%.While the NAR report found that the share of first-time buyers had fallen slightly in 2018, it pointed to signs that the number is likely to grow soon. “Low inventory, rising interest rates, and student loan debt are all factors contributing to the suppression of first-time homebuyers,” Lawrence Yun, Chief Economist at NAR wrote in the report. “However, existing home sales data shows inventory has been rising slowly on a year-over-year basis in recent months, which may encourage more would-be buyers who were previously convinced they could not find a home to enter the market.”This growth of first-time buyers hasn’t been sudden but rather a steady one, according to Liz Bryant, Retail National Sales Manager for Wells Fargo Home Lending. Apart from millennials, she listed baby boomers looking to downsize as another sizeable portion of homebuyers looking for affordable homes this season.“The retiree market has tended to be more consistent, fueled by a rising number of aging baby boomers looking to downsize and/ or relocate to warmer climates and lower tax states,” Bryant pointed out. “Buyers are value-focused in both cases and are moving quickly on homes priced at or below the median price in most rapidly growing markets.”The growing number of this demographic has also meant that affordability and inventory remain sizeable headwinds for these buyers to achieve their American Dream. “Homeowners are remaining in their homes longer than in the past, which means fewer homes are becoming available,” Bryant said. “First-time homebuyers are concerned about the down payment needed to qualify in many markets. We continue to work with buyers to educate them about our low downpayment loan program and the availability of down payment assistance programs.”“Affordability will remain a challenge for most buyers despite mortgage rates providing a measure of relief,” said Tendayi Kapfidze, Chief Economist for Lending Tree. “Inventory is also a challenge, particularly at the lower price points where investors have taken a lot of properties off the market and home builders are not adding a lot of new supply.”Speaking of affordability, saving for a down payment remains the biggest hurdle for this group by far.“The hurdle for buyers has always been the down payment, and as prices rapidly recovered in the early 2010s, many buyers began to gravitate towards lower down payment options,” said Sam Khater, Chief Economist at Freddie Mac. “Moreover, given millennials are the dominant buyer in today’s market, the reason that the first-time homebuyer share is elevated, housing affordability will remain by far the most dominant force holding back buyers from purchasing homes.”“While the vast majority of millennials want to purchase a home, high student loan debt and the lack of savings for a down payment are some of the barriers to entry for them,” said Randy Viars, Regional Production Manager for Planet Home Lending.However, there is hope, with certain cities in the country providing the best starting point for this group. According to Kushi, Memphis, Oklahoma City, Pittsburgh, Atlanta, and Cincinnati are the most optimal markets for these homebuyers.Then there are cities like Houston, that are particularly attractive for the middle class according to Kapfidze, who also listed Pittsburgh along with Buffalo, Dallas, and Minneapolis that remained largely affordable.Another factor that could improve affordability for these buyers in the coming months is the softening of home prices.The Price Flip-FlopThe New York Fed survey found that consumers’ expectations of average home prices at both the one- and five-year horizons fell relative to last year. It revealed that the mean one-year ahead expected a change in home prices in 2019 was 3.6%, over a percentage point below last year’s 4.6% and the second-lowest level since the inception of the survey in 2014. Five-year growth expectations average 2% per year, almost a full percentage point lower than last year.A CoreLogic forecast also recently projected a 4.8% appreciation of home prices nationwide in 2019 and while many states and metros would see solid appreciation rates, “many others will experience significant slowdowns for the first time in over seven years.”Interestingly, the forecast revealed that cities with a “wide array of amenities, active lifestyles, and good career opportunities,” would likely continue to perform well over the next few years. The cities that would experience a decline in home price growth through December 2019 were spread out across the Northeast and Midwest in areas such as New Jersey, Virginia, New York, North Carolina, Pennsylvania, Colorado, and Texas.However, one market that is already feeling the pinch of softening home prices is California. According to Khater, it has cooled down the most over the past year, primarily because it was an expensive housing market. “California experienced rapidly growing price appreciation, and when rates increased, it meant the monthly payment increased by 15-20% in one year, which caused the market to experience a decline in sales, a rise in inventory, and a deceleration in home price growth,” he explained.Another reason why these markets have cooled somewhat, according to Palim, is to avoid what “Alan Greenspan called (in another context) ‘irrational exuberance.’”“In general, market forces often cause short-term house price appreciation rates to revert to a long-run average, and that’s likely what we’ve seen recently,” Palim said giving the example of markets like Seattle where home price appreciation had averaged more than 12% per year from Q2 2012 to Q1 2018.Similarly, in San Jose, Portland, and Denver, the average rate over the same period was more than 11% per year. “By contrast, we haven’t seen much cooling in Gary or Wichita, but over the same six-year period house prices increased by an average of less than 5% per year in each city,” Palim said.According to Sarah Mikhitarian, Senior Economist for Zillow, these previously hot markets have even experienced small monthly declines in home values for the past few months.“It’s a natural price correction following explosive home price growth that outpaced incomes, causing potential buyers, who could no longer afford the down payment, to bow out of the market,” Mikhitarian said. “Prices are still high and these are by no means buyer’s markets, but it’s a stark difference from the extreme seller’s markets from the past couple of years.”For investors, Kapfidze said, some of the best cities where monthly mortgage payments were lower than monthly rents included Miami, Orlando, and Virginia Beach. But, he warned investors looking for price appreciation would need to be wary “as some previously high flying metros are seeing price growth slow, in particular, in high-tech cities on the coast like San Francisco and Seattle.”However, according to Kapfidze, while these high-tech cities on the coasts are cooling, there is something in the air which may change this trend.“The raft of tech IPOs like Lyft, Pinterest, and Uber will mean many employees and investors in these companies could cash out, this may put some momentum back in these markets in the second half of the year,” he predicted.Homebuyers, especially those looking for starter homes are not out of the woods.“Consumers most often cite high home prices as a top concern,” Palim said. “Additionally, they are less likely to attribute homebuying pessimism directly to tight “Consumers most often cite high home prices as a top concern,” Palim said. “Additionally, they are less likely to attribute homebuying pessimism directly to tight inventories, perhaps because inventory levels may not be as obvious to the vast majority who are not actively looking for a home.”Supply ShortageA Zillow study found that starter homes have gained 57.3% in value over the past five years, while inventory in the bottom third of the market has fallen 23.2%, creating a shortage of affordable homes for first-time buyers.“The potential first-time buyer bulge, without inventory to meet it, suggests that the typical age of first-time buyers will continue to be pushed further and further out,” Skylar Olsen, Director of Economic Research at Zillow noted in the study. “The rate of single-family construction is still behind the pace we experienced in the 1990s, and without an increase in truly new supply, would-be first-time buyers will instead persist in the rental market.”According to Kushi, demand for homeownership is likely to peak over the next three to five years as most millennials born in 1990 (the peak year for millennial births) enter the homebuying age. “However, the existing supply shortage—the trend that characterized 2018—remains a factor in 2019, inviting the question as to whether the market is ready for rising millennial demand for homeownership,” she pointed out. “While the supply shortage appears to be easing in some markets, it is largely among higher-end homes. The supply-demand gap will likely continue into the second half of the year as millennial demand continues to grow, and supply for starter homes lags.”Palim agreed. “Recently there has been limited inventory within the lower priced tiers, and home price growth has been more rapid compared to homes in higher priced tiers. Home price growth has also outpaced wage growth, making affordability a growing concern for all homebuyers,” he said.However, according to Mikhitarian some of the recent signs in housing supply have been encouraging for buyers. “Homes are staying on the market longer, which means more inventory is available to choose from and there’s less chance of a bidding war that pushes the sale price well above asking,” she observed. “In addition, a higher share of listings have experienced a price cut, especially in the most-expensive third of homes for sale, as sellers look to find the new asking price sweet spot in a shifting market.”The fact that investors have taken a lot of properties off the market and home builders are not adding a lot of new supply could add to the inventory woes, according to Kapfidze. Additionally, “affordability will remain a challenge for most buyers despite mortgage rates providing a measure of relief,” he said.But, a report by Freddie Mac forecast a steadily growing market in the second half of 2019. “We still expect stronger home sales and housing starts in the coming months due to favorable market conditions and accelerating wage growth,” Khater observed in the report.Additionally, Freddie Mac pegged mortgage rates to average 4.1% during the year, for the 30year fixed-rate mortgage slightly below last year’s 4.6%. And the ongoing stable rates mean that consumer confidence in the housing market is growing.Lending Right“Consumers’ income perceptions, as well as their mortgage rate and home price outlooks, suggest improving affordability conditions,” Palim said.Additionally, the fact that mortgage rates have remained low could help more homebuyers enter the market.“While there has been a slowdown in home sales and prices, the monthly payment remains affordable because mortgage rates remain fairly low,” Khater said.According to the New York Fed, on average, households perceive that mortgage rates have risen about 40 basis points since last year and that the rate they would be offered has risen about 30 basis points. This perception, however, was based on the change in rates through December 2018, but by February 2019 rates had returned to their February 2018 levels, the New York Fed survey revealed.Lenders are also taking advantage of the low rates to get more buyers involved in the mortgage process. According to Viars, the best way for lenders to help homebuyers is education. “There are many different types of mortgage loans available today as we are seeing the non-prime loans return to the market,” he said. “Educating the buyers regarding their options and advising them on what type of loan might be right for their individual needs is more critical today than in the past, especially with the first-time homebuyer.”Bryant listed a number of ways that Wells Fargo is working towards achieving this goal. “Customers can apply for loans where, when and how they want—from the convenience of their kitchen table or in person with one of our home mortgage consultants,” she said. “We’re also taking the work out of the process for customers wherever we can by striving to collect more and more of the information needed for the application on their behalf, so they spend less time typing in information or collecting documents.As consumers demand more from lenders such as a smooth lending process, good information, and the ability to choose the way in which they work with their lender, Bryant observed that lenders were also going that extra mile to fulfill those demands.“Even as we invest in making the process easier, we believe many buyers—and especially first-time buyers—want help along the way,” she said, giving an example of how the home mortgage consultants at Wells Fargo were helping customers to make the entire lending experience one that ended with a customer getting the keys to their new home. in Daily Dose, Featured, News, Print Features Home Home Sellers Homebuyers HOUSING Housing Market loan mortgage 2019-07-04 Radhika Ojha Share
Azamara Club Cruises has announced the appointment of Carol Cabezas to Chief Operation Officer.Carol has been a part of the Royal Caribbean team for the last 17 years. During her time with the parent company she has held a variety of leadership roles across sales, finance and revenue management. Most recently, Carol served as Vice President of Investor Relations for Royal Caribbean Cruises LTD. Prior to that, Carol was AVP of National and Strategic Accounts, North America for Celebrity Cruises where she also served as Director of Sales Planning earlier in her career.“Carol is no stranger to the Royal Caribbean family and we know she will be an incredible asset to Azamara,” said Larry Pimentel, president & CEO of Azamara Club Cruises. “She brings expertise across a variety of important channels and we look forward to elevating the brand through strategic planning and ideas coming from our internal leadership team.”As COO for Azamara Club Cruises, Carol will be responsible for the full range of operations of the cruise line including sales, marketing, revenue, finance deployment and shipboard operations.“It’s an exciting time to join the Azamara family,” states Carol Cabezas. “The Azamara product and offerings are unique in the cruise space and I welcome this opportunity to be a part of the evolution of the brand.”Prior to her career at Royal Caribbean Cruises LTD, Carol was an Associate Consultant at PricewaterhouseCoopers in the Dispute Analysis and Corporate Recovery team.Carol holds a Masters in Finance from University of Miami and Bachelor degrees in Finance and Accounting from Stern School of Business at New York University.