Are apartment investors and 1031 exchange apartment Delaware Statutory Trusts DSTs investors benefitting from this phenomenon where potential home buyers are delaying a small, starter home so they can save and get a better, nicer home to start? 72 percent of those polled “are waiting to save more money and move into a nicer home in the future”, BofA said. If this poll is correct and an entire cycle of purchasing starter houses is skipped, it would be a big shift for the overall market. This could be one of many factors as to why apartment rents are escalating.
Starter homes non-start in SoCal
SoCal house hunters are far less willing to settle for a starter home than elsewhere. Share of adults polled who’d rather move into a starter home now vs. waiting and saving for the dream home:
San Francisco: 37%
Washington, D.C.: 35%
New York: 33%
Source: Bank of America
What SoCal house hunters think
Key issues for SoCal homebuyers, according to a recent poll.
• Emotional factors (mentioned by 76% of those polled) outweigh financial factors (66%).
• Homeownership means security (60%), family (59%), happiness (57%), and responsibility (56%).
• Cost to buy is top consideration (82%); neighborhood (79%) is next.
• Just 42% will buy are planning to buy their first home with a spouse or partner.
• 64% want to settle in the suburbs.
Source: Bank of America
Are days numbered for the starter home?
By JONATHAN LANSNER / Staff Columnist / OC Register
Is the shortage of modestly priced homes – and we’re talking Orange County values, by the way – the reason home sales remain historically sluggish, deep into an economic recovery?
Or is a key group of house hunters disinterested in what the lower end of the regional house market offers?
A new poll of prospective house shoppers from Bank of America raises some intriguing questions about the reluctance of local homebuyers to dive into the market. Orange County homes have sold in the past year near the fastest pace seen since the Great Recession, CoreLogic stats show. Six years after the recession ended, though, the market is still 20 percent slower than historical homebuying from 1988 through 2006.
BofA pollsters found only 25 percent of potential first-time buyers in the five-county Southern California region want a starter home, the lowest level of among 10 major U.S. markets studied. And these local first-timers have a plan: 72 percent of those polled “are waiting to save more money and move into a nicer home in the future,” BofA said.
Recent generations have delayed many life events, from marriage to when a couple has their first child. So putting off the first home purchase isn’t a dramatic surprise. Yet the fact that 43 percent of local first-time buyers plan to do the deal solo – again, highest among the 10 markets – tells you a lot about how loose the link between the traditional family formation and homeownership has become.
If this poll is correct and an entire cycle of purchasing – starter houses – is skipped, it would be a big shift for the overall market.
The poll results suggest newbie house hunters know of the financial challenges involved in today’s housing market that has a tight supply and rising prices: 94 percent of those surveyed will make financial sacrifices to buy. Of course, says this parent/columnist, these same kids – 57 percent of them, at least – expect some help from the folks to make the first-home deal happen.
Buying is not easy. Kevin Reskey, head of BofA mortgage operations in Orange County, Long Beach and the Inland Empire, says the recently stiff competition for homes means the first-time house hunter has to be in solid financial shape and well-versed in the buying process, to purchase.
“There are a lot of buyers and supply is tight. Accordingly, you have to be well-prepared to succeed,” he said.
In Orange County, shoppers for what may be today’s starter home – properties priced below $750,000 – are finding limited choices and what’s available is selling extremely quickly, the latest edition of ReportsOnHousing shows.
As of May 5, 47 percent of the residences for sale in brokers’ listing networks were priced below $750,000. A year ago, this same cheaper end of the market had 54 percent of the listings.
How did we get here? ReportsOnHousing stats show at the low end, Orange County house hunters looking a listings under $750,000 had 11 percent fewer choices vs. a year ago. Demand, or new escrows opened, for these homes was up 4 percent from a year ago.
Compare that with residences listed for sale at $750,000 and above. Supply is up 17 percent from a year ago. And demand is up 17 percent, too.
As a result of the inventory turmoil, Orange County shoppers seeking cheaper homes must act quickly.
The ReportsOnHousing “market time” calculation shows the typical Orange County home listed under $750,000 is getting into escrow in 36 days as of May 5 vs. 96 days for more expensive housing. Any reading under 90 days signals a “seller’s market.”
“Demand is so hot for starter homes that many buyers will not be able to purchase,” ReportsOnHousing’s Steve Thomas says. “There are currently far more buyers than sellers. Buyers need to be on their ‘A’ game in order to be successful and secure a home within these ranges today.”
One turn-off is pricing. The BofA poll showed 27 percent of first-time buyers busted their homebuying budget on their initial purchase. Just look at Orange County affordability numbers.
The California Association of Realtors recently reported the best level of local home affordability in nearly three years. But it still means only 23 percent of Orange County households could qualify to buy the median priced single-family homes in the first quarter.
Compare that to Los Angeles affordability at 31 percent in the first quarter; Riverside County at 42 percent; or San Bernardino at 57 percent. And Orange County affordability averaged 33 percent in 2010 to 2013.
The Realtor affordability index is based on local median selling prices and assumes 20 percent down; prevailing fixed mortgage rates; and house payments equal to no more than 30 percent of their income.
Another Realtor affordability index, which estimated conditions for first-time buyers, showed 43 percent of Orange County households could comfortably purchase a starter home – down from 45 percent a year ago.
Limited affordability and slim supply mean the low-end of Orange County’s housing market continues to struggle this spring.
CoreLogic reported the local home sales pace in the 22 business days ending April 15 was down 3.3 percent from a year ago. Completed sales rose in just 31 of 83 Orange County ZIP codes compared to the year-ago period.
Pricing is up despite falling sales: The median selling price for all residences was $630,000, up 6.9 percent compared with a year ago. Prices were up in 60 of 83 Orange County ZIP codes.
Bargain hunters seem frustrated.
Resales of condos, a tradition starter home, were down 2 percent in the period from a year ago. Yet the median selling price was $446,000, up 8.8 percent from a year ago.
Or consider how the cooling sales pace is playing out in Orange County’s 27 least-expensive ZIP codes, with a median sales price at $562,500 and below. Total sales through April 15 were down 3 percent in the most recent period compared with a year ago. Meanwhile, in the 27 priciest ZIP codes – median sales price beginning at $730,000 – sales were up 1.5 percent vs. 2015.
Homebuying’s money challenge is no secret, as the BofA poll shows: 82 percent of local house hunters listed cost as their top consideration.
But who knows? Would added choices of “affordable” housing change first-timers’ attitudes about starter homes and/or jumping in sooner? Or have the young ones written off the lower end of the market?
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