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Housing Market Changing

The American dream is surviving

By Heide B. Malhotra
Epoch Times Staff
Created: September 13, 2012 Last Updated: September 22, 2012
Related articles: Business » Real Estate
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Michelle Ruiz (L) and Nilson Ruiz listen as Wells Fargo home mortgage consultant, Michael Carreras, helps the potential homeowners with their application for a down payment assistant grant at the Miami Airport Convention Center on June 1, in Miami, Fla. The American dream of owning a home is still going strong with a recent survey with 57 Percent of respondents saying owning a home is among the best long-term investments they could make. (Joe Raedle/Getty Images)

Michelle Ruiz (L) and Nilson Ruiz listen as Wells Fargo home mortgage consultant, Michael Carreras, helps the potential homeowners with their application for a down payment assistant grant at the Miami Airport Convention Center on June 1, in Miami, Fla. The American dream of owning a home is still going strong with a recent survey with 57 Percent of respondents saying owning a home is among the best long-term investments they could make. (Joe Raedle/Getty Images)

The American dream of owning a home didn’t go up in smoke after the housing bubble burst, according to a survey performed last year by Harris Interactive on behalf of Trulia Inc. According to survey results, a large number of respondents still believed in the American dream of owning a home. 

“More than half (57 percent) of current homeowners said owning a home is among the best long-term investments they could make,” according to Trulia’s September 2011 press release. 

Over half of those surveyed said that the down payment was a major hurdle in assuming home ownership. About 62 percent of those between the ages of 18 and 34 stated that the down payment was by far the greatest stumbling block, followed by poor credit history and difficulty in qualifying for a mortgage.

Jed Kolko, chief economist at Trulia, viewed the housing market from a financial perspective. Commenting on the survey results, he said in the press release: “Today’s aspiring homeowners face many financial obstacles in order [to] achieve their American Dream of homeownership.” 

 

Home Ownership Metrics

In historical terms, home ownership has dropped to 62.1 percent, according to a blog entry by Sean Fergus on the John Burns real estate consulting firm’s website. Fergus stated that this is a significant decline from 2004, when more than 68 percent of Americans owned a home. In the fourth quarter of 2006, the percentage of those owning a home began its steep decline, 

“We are confident homeownership will come back. Our survey of 20,000 consumers, and many surveys by others, confirms that the American dream of homeownership is as strong as ever. … We are seeing foreclosed homeowners return as home buyers after the 3-year waiting period required by most mortgage programs,” wrote Fergus on his blog. 

The number of unoccupied foreclosed homes on the market is far more than reported and differs vastly from one report to the other. But many experts are certain that it will take many years, ranging from 5 to 23 years, before the reported and unreported housing inventory is reduced. 

A July article on the Aol Real Estate website suggests that according to two real estate research firms, around 90 percent of foreclosed homes are being held in housing inventory and are not yet for sale. The article reasons that if all homes were to be released into the market, the price of homes could drop by 20 percent, depressing the housing market even further. 

According to Federal National Mortgage Association’s (Fannie Mae) second quarter financial filings, 47 percent of its foreclosed housing inventory was sitting idle on its books and had not been put on the market. 

Fannie Mae’s quarterly report states: “We continue to manage our REO [Real Estate Owned] inventory to minimize costs and maximize sales proceeds. However, as we are unable to market and sell a higher portion of our inventory, the pace at which we can dispose of our properties slows.” 

Changing Trends Transforming Housing Market

“The homes that people will want in the future will look different than today’s housing stock. Retiring baby boomers won’t want big suburban houses,” Kolko said in Trulia’s press release. 

There are a large number of baby boomers, babies born between 1946 and 1964 (75.8 million). The explosion in births happened when American soldiers returned from World War II deployment. 

“Boomers today represent 28% of the U.S. population. But in 1964, they represented about 40% of the population. In other words, in 1964 more than a third of the population was under 19 years old! No wonder the baby boomers attracted so much attention,” according to statistical information on the Baby Boomer Headquarters website. 

Baby boomers’ influence on the housing market has been a hot topic over the past year, given that a new stage in their life, retirement, has begun. They are not looking for a large home with lots of space, but are more than willing to trade down, preferring to live within walking distance to different types of restaurants, stores, and cultural activities. 

The changing trend in home ownership includes an investor-driven housing sale recovery, according to an August blog entry by Erik Franks on the John Burns website. Investors are picking up foreclosed homes, homes that are on the market at a much reduced price, and putting them on the rental market. 

During the first quarter, investor home purchases across 167 metro areas increased by 29.6 percent, a 6 percent increase from the fourth quarter in 2009, according to a John Burns study referenced by Franks. Franks suggests that during the second quarter, even more investors bought depressed homes. 

“Investor activity has returned to the markets where investors got burned the most. These markets include Stockton, Miami, Las Vegas, Riverside-San Bernardino, Sacramento and Phoenix. Some markets are now completely dominated by investors, such as Las Vegas (50% of all activity) and Phoenix (46%),” Franks wrote in his blog.

Home Prices in 2012

“Debunking the new home sales theory, economists in general believe 700,000 in new home sales in a year is considered normal during modest economic growth. We’re on pace for only 372,000 new home sales this year, 46% below the level that is considered normal,” according to an Aug. 31 article by Michael Lombardi on the Profit Confidential website. 

According to Lombardi, today’s home prices are around 31 percent lower than the highest price listed in 2006. Lombardi suggests that because of inflation, house prices must increase by 45 percent in order to achieve 2006 home prices. 

According to the S&P/Case-Shiller Home Price Indices, home prices increased by 1.2 percent by the end of second quarter compared to the same quarter in 2011. This was the first increase since mid-2010, indicating an upward movement in housing prices. 

An Aug. 23 Federal Housing Finance Agency (FHFA) press release stated that U.S. home prices increased by 1.8 percent between the first and second quarter, with a .89 percent increase during the first quarter compared to the prior quarter. 

The FHFA historical numbers indicate that between the second quarter of 2007 and the second quarter of 2011, housing prices declined every quarter. The first increase was noted in the third quarter of 2011, followed by another decline the following quarter. 

In an Aug. 30 article on the Profit Confidential website, George Leong states: “The housing market is clearly on the upside, with stronger housing starts and building permits. … Moreover, home prices representing another key piece of the housing market, are edging higher.” 

Not all housing market experts agree with the interpretation of upward housing price movements and suggest that a review of historical financial housing prices is important. “The recent housing data simply look better because they’re being compared to results from last year, which was overly depressed,” Lombardi states in his Aug. 31 article on the Profit Confidential website. 

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