Thursday, January 30, 2014

Jed Kolko’s 3 Big USA Real Estate Worries

Despite all the positive developments that have occurred in the last year, the U.S. housing market still faces major challenges that could slow or even cripple its progress in 2014. These are Jed Kolko’s thoughts about the three biggest upcoming challenges.
Availability of Mortgage Credit
After years of wild and carefree lending leading up to the bubble burst, lenders have made mortgage credit tight throughout the recession. This has made it more difficult for aspiring homebuyers to buy homes, further hampering the market’s recovery.
It is unclear if access to credit will become easier in 2014, but Kolko believes it might. Here are two reasons why:
·         Rising mortgage rates could lead to more mortgage credit for homebuyers. As rates have risen, the demand for refinancing existing loans has dropped. This may cause lenders to shift credit to new home purchases instead.
·         New rules for lenders will clarify what is a “safe” loan. These rules will make banks more confident in issuing “safe” loans, making it easier for homebuyers to get them.
Homeownership Rates for Young Adults

Millennials will play an important role in the continuing recovery of the U.S. housing market.
Why is this? New home construction is relatively slow in part because fewer households are being formed. This can be partially attributed to the lack of job opportunities available to young adults in our post-recession economy. Without the requisite funds to buy a home, young Americans are choosing to live with their parents in staggering numbers. According to AOL Real Estate, today’s young adults are less mobile now than their age group has been in 50 years and have been dubbed “Generation Wait.”
Kolko predicts the long-term housing market recovery won’t be complete until Millennials are able to afford homes of their own. This means the availability of jobs – the means for young Americans to buy housing – will be key to your market’s growth in 2014 and beyond.
Government Impact on the Real Estate Industry
Is the federal government’s housing policy helping or hurting the real estate industry? The answer is unclear, but will hinge on how the government handles these three issues:
·         Budget reforms: Everything is on the table for the budget reforms that were agreed upon in the negotiations that ended the government shutdown. This includes the mortgage interest deduction, which gives consumers a financial incentive to own their housing. Altering this deduction will presumably reduce consumer demand – the question is how much.
·         Reforming Fannie and Freddie: According to Kolko, the argument around Fannie and Freddie boils down to this: “How much should the government and consumers be on hook for keeping the 30-year fixed-rate mortgage available and relatively cheap? How much risk do we want the government and taxpayers to take when the next housing downturn happens?” The policy created to answer these questions will undoubtedly impact the housing market.
·         The tapering of bond-buying: For many months now, the Federal Reserve has planned on cutting back its bond purchases. Mortgage rates spiked during the summer not because the Fed started tapering bond purchases, but because they were expected to start tapering them! Kolko expects that the Fed won’t begin tapering anytime soon (the government shutdown was good for something!) but when it does, rates will almost surely rise.


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