DS News - U.S. Bank

26 ASK THE ECONOMIST HEAR DIRECTLY FROM TODAY'S LEADING MARKET EXPERTS. As Deputy Chief Economist for First American Financial Corporation, a provider of title insurance, settlement services, and risk solutions for real estate transactions, Odeta Kushi prepares analysis, commentary, and forecasts on trends in the real estate and mortgage markets. Kushi also conducts research around demographic trends, millennials, and homeownership, as well as monitoring and analyzing quarterly surveys and economic data related to the housing industry. DS News spoke with Kushi on trends impacting the real estate market, from millennials to inventory shortages. YOU'VE PREVIOUSLY DISCUSSED HOW THE 2017 TAX CUTS AND JOBS ACT IMPACTED HOME PRICES. WHAT RECENT LEGISLATION MAY IMPACT AFFORDABILITY AND SALES THROUGH THE REST OF 2019? Hard to say, but the reality is the impact of rising tenure length on the housing market is likely to be more important than any recent legislation. Tenure—the length of time a homeowner lives in their home—has increased dramatically in the years following the recession and is now at a record high of 11 years. Since existing-homes are the vast majority of supply to the housing market, rising tenure means fewer and fewer homes available to buy, just as millennials enter their home-buying years. WHAT IMPACT ARE MILLENNIAL BUYERS AND OTHER FIRST-TIME BUYERS HAVING ON THE HOUSING MARKET? e oldest millennials are just now entering their early to mid-30s. ey've reached an age where marriage and having children are more likely, which are the primary drivers of homeownership. Recently, owned household formation has trended upward at the expense of rental households, indicating that greater numbers of renters are transitioning into homeownership. Indeed, as of February 2019, 50% of all purchase mortgages originated by Fannie and Freddie went to first-time home buyers. is is 7.0% higher than five years ago, and 1.0% higher than one year ago. Rising demand has generated rapid house price appreciation for starter homes. According to Zillow data, homes in the bottom third of house prices (starter homes) have gained 61.3% in value over the past five years, while inventory has fallen 26.4%. When a wave of potential first-time home buyer demand is met with low supply, the result is declining affordability. WHAT IS THE STATUS OF HOUSING INVENTORY ACROSS THE COUNTRY? IS THERE ENOUGH TO MEET DEMAND? In 2018, we gained 1.2 million new households but built less than 900,000 new houses, condos, and apartments. New household formation is expected to grow as more millennials enter their prime homebuying years, and baby boomers are living longer and more independently than ever. For more than a decade, home building has not kept up with the demand for shelter, creating a housing supply deficit that will prove difficult to reduce significantly. WHAT ARE SOME OF THE MARKETS POISED FOR HOMEOWNERSHIP GROWTH THIS YEAR? Across the nation, homebuyers are enjoying greater homebuying power due to lower-than- anticipated mortgage rates, rising wages, and a relative slowdown in house price appreciation. As the surge of millennial demand continues in 2019, millennial first-time home buyers may want to consider cities that offer a greater supply of affordable homes. According to our First-Time Home Buyer Outlook Report, which looks at the share of homes for sale that are affordable for the median renter across 44 markets in the U.S., cities such as Memphis, Oklahoma City, and Pittsburgh are areas where millennial first-time home buyers may find the best outlook for homeownership. BESIDES INVENTORY LEVELS, WHAT ELSE IS HINDERING AFFORDABILITY NATIONALLY, AND WHERE HAS AFFORDABILITY INCREASED THE MOST IN RECENT MONTHS? According to the First American Q2 2019 Real Estate Sentiment Index, 40% of survey respondents indicated that affordability is the primary obstacle to becoming a homeowner. is is not surprising as house "New household formation is expected to grow as more millennials enter their prime homebuying years, and baby boomers are living longer and more independently than ever. For more than a decade, home building has not kept up with the demand for shelter, creating a housing supply deficit that will prove difficult to reduce significantly." Odeta Kushi Deputy Chief Economist, First American

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