Has The Game Changed? Millennials, and the Economics of Housing

Transcription

1 Has The Game Changed? Millennials, and the Economics of Housing January, 2017 First American Financial Corporation makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. First American Financial Corporation is a parent holding company that does business through its operating subsidiaries. First American and the eagle logo are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates. The following presentation is for informational purposes only and is not and may not be construed as legal advice. First American Financial Corporation is not a law firm and does not offer legal services of any kind. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding title practices. You should consult with an attorney prior to embarking upon any specific course of action First American Financial Corporation and/or its affiliates. All rights reserved. NYSE: FAF

2 It ain t what you don t know that gets you into trouble. It s what you know for sure that just ain t so. - Mark Twain

3 Is Something Restricting the American Dream? Homeownership Rate (%) Jan-65 Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15 Source: US Census Bureau, Q #FirstAmEcon

4 Demographics Drives Rental Demand Household Formation by Occupancy Type (Year-Over-Year Inventory Growth, %) Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Source: Census Bureau, FRED Q #FirstAmEcon Recession Rented Owned Rented Three Year Moving Average

5 Renting Millennials Homeownership Rate for Households Under Source: Census Bureau CPS/HVS, 2015 #FirstAmEcon

6 Over or Under Achieving GenY Homeownership Marriage 1.2 Income Children Employment Source: Census Bureau, #FirstAmEcon Education Baby Boomers Generation X Millennials

7 Borrow More and Pay More? Average Loan Term (Years) and Payment-to-Income Ratio average repayment term Mean P/I (Right Axis) Median P/I (Right Axis) Source: Federal Reserve Board of Governors SCF, % 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% #FirstAmEcon

8 Education Attainment Percent Share of Population with Bachelors Degree or Higher Baby Boomers Gen X Millennials Source: ACS IPUMS, #FirstAmEcon

9 With Age Comes Wisdom and Homeownership Percent of Homeowners Source: IPUMS CPS, Asian Black Hispanic #FirstAmEcon

10 #FirstAmEcon

11 Forecasting Housing s Future Sunny with a few cloudy periods today and Thursday, which will be followed by Friday -The Province (Vancouver, B.C.) 6/21/78

12 Potential Still Rising But Recent rate Increases Expected To Taper Future Demand Existing and Potential Home Sales ('000s, SAAR) Recessions Existing Sales Potential Sales Source: NAR, FRB St. Louis, First American Calculations, September 2016 #FirstAmEcon

13 Demographics Drives Building Potential Single and Multifamily Housing Starts ('000s,Units) #FirstAmEcon Source: US Census Bureau, FRED, Nov Recessions 5+Units 1-4 Units

14 Housing's Quarter-Century Tailwind 30-Year Fixed Rate, Effective Federal Funds Rate, % NSA 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Jan-63 Sep-69 May-76 Jan-83 Sep-89 May-96 Jan-03 Sep-09 May-16 Source: Freddie Mac, FRED, Jan #FirstAmEcon Recessions Mortgage Rate (%) Federal Funds Rate (%)

15 Real Prices Remain Well Below Historic Levels House Prices (SA, Jan = 100) Source: Standard & Poors, First American, October #FirstAmEcon Recessions Real Unadjusted

16 Real Prices Remain Low In Most Markets Source: FHFA, Freddie Mac, Census, FirstAmEcon, October 2016 #FirstAmEcon

17 First-Time Buyers Rebounding First-Time Homebuyer Market Share and Transaction Volume Index (%, Volume- April 2013 = 100) % 53% 52% 51% 50% 49% 48% Overall (right) Loan Volume (left) Source: AEI International Center on Housing Risk, August #FirstAmEcon

18 @mflemingecon #FirstAmEcon

19 Residential Purchase Transactions Expected To Grow Source: First American Calculations, Q4 #FirstAmEcon

20 Year Ahead Price Expectation For All Property Types Source: First American Calculations, Q4 #FirstAmEcon

21 First American s Office of Economic Research #FirstAmEcon

22 Has the Game Changed? 2017 Housing Market Forecast and Homebuyer Trends January 11, 2017 National Association of REALTORS Research Department Jessica Lautz Managing Director, Survey Research and #NARHBSat35

23 Myths About Who Are Buying Homes and Why Gen Y want to remain renters (or live w/mom & dad forever) Exodus from suburbs and into the city Baby Boomers downsizing and swarming Florida

24 Just the Facts, Ma am By 2045 majorityminority country Millennials have overtaken Baby Boomers Same share of singles as married couples

25 Share of Home Sales Vacation Buyers, 16% Primary Home Buyers, 65% Investors, 19% 2016 Investment and Vacation Home Buyers Survey

26 Profile of Home Buyers and Sellers Annual survey of recent home buyers (purchased in the last year) Report started in 1981 Largest sample size of its kind Longest running survey of its type 95 percent confidence level with a confidence interval of plus-orminus 1.32%.

27 $110,000 Rise in Household Income $100,000 $98,000 $90,000 $88,500 $80,000 $70,000 $74,600 $66,300 $72,000 $60,000 $54,800 $50, All Buyers First-time Buyers Repeat Buyers Profile of Home Buyers and Sellers

28 Return of Single Females 90% 80% 81% 70% 66% 60% 50% 40% 30% 20% 22% 17% 10% % % 7% 2% Married Couple Single Female Single Male Unmarried Couple Other Profile of Home Buyers and Sellers

29 First-time Buyers Rising But Suppressed 60% 50% 50% 40% 35% 30% 30% 32% 20% Historical norm is 40% among primary residence buyers 10% % Profile of Home Buyers and Sellers

30 Millennials Face Hurdles Flat wages Rise student loan debt Rise in rents Rise in home prices

31 Affordability Problems Increasing 67% homeowners good time to buy vs 56% renters & 48% those who live w/someone 65% think it would be difficult to qualify for a mortgage West region, renters, younger, and under $50,000 household income Housing Opportunities and Market Experience (HOME)

32 Lack of Affordable New 100% Homes 80% 60% 40% 20% 0% 28% 18% 14% Profile of Home Buyers and Sellers Previously Owned New

33 Non-Homeowners: Student Debt Delays Home Purchase 80% 70% 71% 60% 50% 40% 30% 20% 10% 5% 2% 13% 10% % Yes No impact Helped buy home Don't know Don't want to own a home 2016 Student Loan Debt and Housing Report

34 Homeowners: Debt Delays Selling & Buying Another Home Don't know 36% No, student loan debt did not delay selling home 33% Yes, too expensive to move & upgrade to a new home 18% Yes, problems w/ student loans have impacted credit for for a future mortgage 7% Yes, underwater-student loan debt limited ability to pay more on home 6% % 10% 20% 30% 40% 2016 Student Loan Debt and Housing Report

35 Homeownership Unchanging to the American Dream 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% % 89% 11% Housing Opportunities and Market Experience (HOME) Yes No

36 Median Age of Home Buyers All Buyers First-time Buyers Repeat Buyers

37 Multi-Generational Home Buying Caretaking parents Want larger home to pool money Spend time w/parents 1 in 10 Bought Multi-Gen Home Children 18+ never left Cost savings Children 18+ moving back in 2016 Profile of Home Buyers and Sellers

38 Prior Living Arrangement of First-time Buyers 00% 15% 12% 21% 80% 4% 60% 40% 80% 81% 74% 20% 0% Rented an apartment or house Lived with parents, relatives or friends Other Owned previous residence Rented the home buyer ultimately purchased Profile of Home Buyers and Sellers

39 Share of Downpayment % 25% 23% 20% 20% 18% 15% 14% 10% 10% 9% 10% 5% 6% % All Buyers First-time Buyers Repeat Buyers Profile of Home Buyers and Sellers

40 Difficulty with the Mortgage Application Process All Buyers 14% 23% 43% 20% First-time Buyers 13% 27% 36% 24% Repeat Buyers 15% 21% 48% 17% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Much more difficult than expected Somewhat more difficult than expected Not difficult/no more difficult than expected Easier than expected Profile of Home Buyers and Sellers

41 Buyers with Student Loan Debt First-time All Buyers Buyers Repeat Buyers Have student 27% 40% 19% loan debt Under $10,000 21% 20% 23% $10,000 to $24,999 $25,000 to $49,999 $50,000 to $74,999 $75,000 or more Median $25,000 $26,000 $24,200 Profile of Home Buyers and Sellers

42 Rejection from a Lender 5% were denied 7% of first-time and 4% of repeat Reasons Typically denied 1 time Debt to income ratio, low credit score, income cannot be verified 31% have student loan debt, 56% getting mortgage most difficult step Profile of Home Buyers and Sellers

43 A veteran 18% Self or Spouse/Partner Veteran or Active-Duty Military Buyer An active-duty service member 2% Neither 80% Profile of Home Buyers and Sellers

44 Sexual Orientation of Buyers Bisexual, 1% Prefer not to answer, 7% Gay or lesbian, 3% Heterosexual or straight, 90% Profile of Home Buyers and Sellers

45 Buyers in Senior- Related Housing 14% of all buyers over 50 years old Condos & small towns resort 30% of buyers years old Profile of Home Buyers and Sellers

46 Expected Tenure Remains High Profile of Home Buyers and Sellers First-time Buyers Repeat Buyers

47 11 10 Actual Tenure in Home is Elevated Profile of Home Buyers and Sellers

48 Where Clients Come From 64% sellers used agent referred to them/had worked w/before 53% buyers used agent referred to them/had worked w/before 2/3rds of buyers/sellers only contact 1 agent Among members 40% business is from repeat clients and referrals

49 Inventory is Top Struggle with Buying Process Finding the right property 52% Paperwork 24% Understanding the process 17% Getting a mortgage 11% Saving for the down payment 13% No difficult steps 16% 2016 Profile of Home Buyers and Sellers

50 Buyer Use of Agents 00% 90% 80% 70% 60% 50% 40% 30% 82% 69% 88% 20% 10% 0% Through a real estate agent or broker Directly from the previous owner Directly from builder or builder's agent

51 Agent-Assisted Sales at All- 100% 90% 80% 70% 60% 50% 40% 30% 20% Time High 21% 15% 89% 10% 0% % 3% All FSBO (For-sale-by-owner) Agent-assisted Other Profile of Home Buyers and Sellers

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