Getting Housing Back on Track

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Getting Housing Back on Track

Over the past decade, grim employment prospects coupled with high student loan payments have forced members of the Millennial generation to delay their progress toward the milestones of adulthood, including marriage and homeownership.  According to the National Association of Realtors (NAR), 44 percent of Millennials owe at least $25,000 in student loans.  As a result, millions of young adults are still living with their parents.

But that is finally starting to change.  According to the NAR, in 2016, 61 percent of people who purchased a home for the first time were under the age of 35—and the association expects that percentage to increase in 2017.1

However, entry-level homes are hard to find.  That’s because many homeowners who bought their first house and condos during the boom in the middle of the last decade are still underwater, so they’re reluctant to put their homes on the market and take losses in order to trade up.

In the nation’s hottest markets, tight inventories have created a shortage of available homes relative to buyers.  On average across the country, the inventory is at 4.5 months.

That’s equivalent to 1.85 million homes for sale as of November 2016, a decrease of 9.3 percent from November 2015, marking the eighteenth straight month that the housing inventory has dropped.2

That’s welcome news for the construction industry.  According to Census data, new home sales went up 12 percent in 2016, while the NAR reported that sales of existing homes rose 6 percent.

Meanwhile, prices climbed 6.2 percent in 2016, bringing the value of the national median home to $191,200.

Improvements in the overall economy also portend gains in the real estate market.  According to the NAR’s chief economist Lawrence Yun, “The good news is that the tightening labor market is beginning to push up wages and the economy has lately shown signs of greater expansion.”

At the same time, it’s becoming a little easier to get credit.  The Federal Housing Finance Agency is increasing its lending limits for 2017 for the first time since 2006.  Until now, a loan for more than $417,000 was considered a jumbo loan with a higher interest rate, but the limit is going up to $424,100.

FHA loan limits will also get a small increase, from $271,050 to $275,665.  According to the Washington Post, “Both of these increases reflect rising confidence in consumer ability to repay larger loan amounts and will provide buyers with more options when it comes time to choose a home.”3

However, mortgage rates are rising.  According to Bankrate.com, during the summer of 2016, the average 30-year fixed-interest mortgage rate remained under 3...

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