Lee Morof's Real Estate Blog

The “Golden Girls” trend got its name from the popular television sitcom about four elderly women who live together to share expenses. It is becoming a popular way in real life for elderly adults to share homeownership and it has many benefits.

The cost of assisted living is quite high. The median cost in the United States for assisted living is $4,051 per month. In many parts of America, that amount makes a substantial mortgage payment. Rather than pay that high price to live in an adult assisted-living community, many able-bodied elderly are choosing to pool their resources and live together in a large home that they own together.

Buying A Home To Share

The homes that work well for this are those that have many bedrooms, each with a private bath, and are on one-level. Three- or four-bedroom homes are ideal because the cost of the home and the operating expenses can be shared among three or four elderly adults to reduce each person’s cost compared to what they would spend if they were alone.

It Is Fun To Share

The communal areas for a shared-living arrangement are the main living room, dining area, and kitchen. Many find that by sharing the cost of a home, among like-minded peers, that the quality of life is very nice. The pooling of resources usually creates enough money to pay for the expenses and to pay for in-home personal assistance as needed. Most importantly, loneliness is reduced, which sometimes leads to serious depression in the elderly who live alone.

Many baby boomers are now entering retirement. Estimates are that seven out of 10 will need some form of assisted living care. Females still live longer than men on average, so that is why this trend is more about elderly women living together than men. However, the concept works just as well for both sexes.

Multigenerational living is also becoming popular for the same reasons. It costs so much to own and maintain a home that it is not as easily accomplished by households with one or two workers who contribute to pay for the expenses. Most situations benefit from having a third or a fourth contributor, which reduces the average contribution for all.

Get Competent Legal Advice

When considering any shared ownership of a home, it is very important to use the services of a competent legal counsel to draw up the ownership agreement. Shared homeownership is a type of partnership and benefits from having a “buy-sell” provision in the agreement that allows any remaining co-owners to buy out the portion held by a co-owner who dies or otherwise becomes physically unable to continue living in the home.

Summary

Most baby boomers had roommates when they went to college to share expenses. Embracing a “Golden Girls” strategy to share home ownership is like returning to a style from the younger times. It is wise to be very careful about who is chosen to form a home-ownership partnership; however, with proper legal documentation and prudence in choosing who to live with, this can be a very satisfying way to spend your golden years.

Millennials are the first generation in America that will probably not be able to do as well as their parents. In the United States, there is not as much upward mobility as there was in the past. What is the cause of this?

CNN reports that Millennials have more college degrees than their parents. They also have an enormous amount of student loan debt. Many millennials have lower-paying jobs than their parents had at the same age when adjusted for inflation. Spending patterns changed as well, due to the high cost of living.

Finding The Money

Saving is not easy. The net worth of Americans, who are from 18 to 35 years old, decreased by 34% since 1996. Even though millennials are financially savvy, the 2008 global financial crisis made it difficult to find jobs and made saving for many nearly impossible.

Those who have been able to put aside some money in the last ten years are lucky if they have $8,000 in savings, which is the average for those millennials trying to save for a home purchase.

Soaring Home Prices

By 2018, the real estate market recovered from the 2008 collapse. In most American cities, housing prices are going up significantly. The home prices surpassed pre-crash levels and now continue to rise. Soaring home prices make buying a home very challenging.

What To Do?

For most millennials, the best choice is to continue to live with their parents and use the lower cost of living as an opportunity to put away enough money for the required down payment to buy a house. Many plan to live very frugally and to save for up to five years if they want to buy a home of their own.

For others, they are developing co-ownership plans, where millennials plan to share home buying with more than one person. In these deals, they become the landlord and the tenants of a multifamily property that they buy together.

The Math

The median home price in America is $226,800. First-time buyers, who qualify, can get FHA-backed mortgage financing with as little as 3.5% down. Still, that is $7,938 just for the down payment. There is also the need to have 2% to 5% of the loan amount for closing costs, which can add up to $10,943.

Financial prudence recommends having at least three months of living expenses in savings to cover any unexpected temporary emergencies, like losing a job. Add another $12,000 for this contingency. This means to safely buy a home at the median price, with a low-down-payment loan, a millennial may need to have as much as $30,881.

For conventional financing, with 20% down, the numbers are much higher. For that type of financing, a millennial needs about $66,432.

Summary

Millennials face significant challenges in homeownership that are unique to their generation. For these reasons, many are delaying homeownership for at least five years and living with their parents longer, to save more money, to make their dream of homeownership come true in the more distant future.

If you are in the market for a new home or interested in refinancing your current property, be sure to contact your trusted real estate professional.

The Federal Open Market Committee of the Federal Reserve issued its scheduled post-meeting statement Wednesday. Policymakers unanimously decided to leave the target federal funds rate range unchanged at 1.50 to 1.75 percent.

FOMC members reasserted previous views that inflation was “subdued” and the economy was growing at a moderate pace. The Fed typically bases decisions about interest rates on its dual mandate of achieving maximum employment and an annual inflation rate of 2.00 percent.

U.S. Economy Strong, Fed Chair Sees No Immediate Risk From China

FOMC cut the target interest rate range three times in 2019 to offset higher prices associated with a trade war with China, but the Committee considered recent progress in trade negotiations as an indication that there was no current need for further rate cuts. Fed Chair Jerome Powell said he was not concerned about immediate risks from China.

In its current assessment of economic conditions, the Fed cited a strong labor market and job growth but said that business investments and exports were weak. Core inflation readings, which exclude volatile food and fuel sectors, consistently ran below 2.00 percent. The FOMC changed language in its statement to indicate a goal of achieving an inflation rate of 2.00 percent; previous statements referred to an inflation goal of near 2.00 percent.

Committee members will continue to monitor current and developing economic conditions to determine when or if to change the benchmark interest rate range in future meetings.

Fed Chair: Fed Is Monitoring Potential Impact Of Coronavirus Outbreak

Concerns over trade conflicts with China were overshadowed by an outbreak of a strain of Asian influenza in China. The disease, caused by a coronavirus, is extremely contagious and spreads quickly. This could impact global economic conditions as international air travel and shipping may be limited or stopped to prevent further spread of the virus.

Fed Chair Jerome Powell said that although the Fed is not worried about an immediate threat, the FOMC members would continue to monitor how and where the current outbreak of Asian influenza spreads to determine if changes to the Fed’s monetary policy positions are necessary. Tensions in the Middle East were not mentioned in the FOMC statement or Fed Chair Jerome Powell’s post-meeting statement.

Millennials are a huge socio-demographic group of over 83 million people. Many of them want to buy a home but face challenges that their parents did not necessarily have. Homes are more expensive. In most places, home prices rebounded to exceed the pre-2008 economic collapse values. Moreover, home prices continue to go up.

The encouraging news is that there is home financing readily available and mortgage interest rates are still reasonable. Even if it is more challenging, the greatest investment that most Americans can make is buying a home. Paying rent is only helping the landlord get rich. Homeownership is still highly desirable and a part of a wise long-term investment strategy.

Here are some tips that millennials can use to become homeowners.

Save For The Down Payment And Build An Excellent Credit History

The best rates for home loans are for those with an excellent credit history who can put down 20%. It is possible to borrow the down payment. The problem with this strategy is that the cost of the loan is higher. The mortgage rate may be higher and the lender may require private mortgage insurance (PMI). PMI pays off the loan balance to the lender if the homeowner defaults on the loan; however, it does not protect the homeowner’s equity in the home or any down payment. PMI just adds another monthly expense.

Create Non-Location Dependent Income

Home prices are somewhat dependent on the local economy and the employment available in the local area. By creating non-location dependent income through the “gig” economy. Work as a freelancer or a person who telecommutes by working from home. With this income, you will be freer to look for a home in a rural area or an area where the home prices are lower.

Take Advantage Of First-Time Homebuyer Programs

Many first-time homebuyer programs are offered by programs of the federal government through the Housing and Urban Development (HUD) and other agencies. Be sure to investigate those possibilities when considering buying a home.

Hunt For A Home In Low-Cost Areas

Use the online systems when searching for a home to compare two things, 1) the median price of homes for each area and 2) the cost of living for each area. The areas with low median prices and that have a lower cost of living are usually easier places to buy a home.

Partner With Others

A home-buying partnership is something many are using to make owning a home more affordable. Multigenerational ownership is used by many families to buy a large home together and share it. Other partnerships can be made among individuals, who are not relatives, to share ownership. Choose ownership partners very carefully and be sure to have competent legal counsel when creating a written ownership agreement.

Summary

Millennials are challenged with new obstacles when seeking to buy a home. The strongest challenge is the cost of homeownership. However, there are many clever ways to improve the chances of enjoying an affordable ownership situation. Be patient and do not give up. Work with a REALTOR® who understands the challenges and is an expert in the area where you are thinking about buying.

The Federal Open Market Committee of the Federal Reserve announced its unanimous decision not to change to the current target federal funds range of 1.50 to 1.75 percent. The committee’s customary post-meeting statement said the decision not to change the Fed’s target range for federal funds was based on factors including a strong labor market, moderate economic growth, continued job growth, and low unemployment.

Economic readings reviewed prior to the FOMC meeting held Tuesday and Wednesday supported the achievement of the committee’s dual mandate to achieve maximum employment and maintain price stability.

According to the post-meeting statement issued on December 11, FOMC members consistently review incoming global and domestic economic news to determine if the Fed’s monetary policy should be adjusted. Chair Powell signaled that the federal funds rate may not change in 2020, but repeated the FOMC’s frequently-repeated caveat that monetary policy is subject to change as world news and economic conditions may warrant.

Expected And Realized Economic Conditions Contribute To Fed’s Monetary Policy

FOMC members reviewed their expectations of economic performance and compared them with actual readings in evaluating economic performance as connected to the Federal Reserve’s dual mandates of maximum employment and price stability. Low unemployment and overall inflation readings near two percent supported the Committee’s decision not to change the target range for the federal funds rate.

Fed Chair Expects Strong Economy To Continue

Federal Reserve Chair Jerome Powell said in a scheduled press conference that he and his colleagues in the Federal Open Market Committee are confident that strong economic conditions will prevail over the next few years. Mr. Powell said that the Fed expects the national unemployment rate to remain near a 50-year low at approximately four percent; he said that the national unemployment rate is expected to remain low in the near-term. Chair Powell said that the economy has remained strong for 11 years; this is the record for the longest run of positive economic conditions.

Inflation remains below the Fed’s objective of 2.00 percent; Chair Powell said that the overall inflation rate averaged 1.30 percent, but core inflation, which excludes volatile food and energy sectors averaged 1.60 percent. Chair Powell said that the core inflation reading was a more reliable indicator of long-term inflation.

Jobs and wages increased in lower to middle-income communities, but the business and manufacturing sectors weakened. Mr. Powell suggested that the Fed would leave interest rates unchanged in 2020 unless economic and news events indicate that a change in the current monetary policy becomes necessary.

Case-Shiller’s National Home Price Index showed 3.20 percent national home price growth in September, which was 0.10 percent higher than August’s reading of 3.10 percent. The 20-City Home Price Index showed the continued impact of exorbitant home prices on both coasts as home price growth slowed in high-cost areas and smaller markets experienced upward pressure on home prices as home buyers were seeking affordable homes.

Phoenix, Arizona led the 20-City Home Price Index with 6.00 percent year-over-year growth in September. Charlotte, North Caroline had 4.60 percent growth in home prices and Tampa, Florida rounded out the three cities with highest year-over-year home price growth with 4.50 percent growth. The 20-City Home Price Index has documented migration of home buyers away from prime metro areas to interior and southern states. Analysts said that lower mortgage rates helped affordability in some cases, but home price growth outpaced stagnant wage growth and inflation.

FHFA Data Shows Home Buyers Leaving High Priced Areas

Federal Housing Finance Agency reporting for the third quarter of 2019 supported Case-Shiller’s trends. Home prices in mid-sized cities are rising as buyers relocate to areas where home prices are accessible to moderate-income buyers. FHFA reported year-over-year price growth for homes owned or financed by Fannie Mae and Freddie Mac slipped to 4.90 percent. This was the first time home price growth dipped below 5.00 percent growth since 2015.

FHFA reported home prices in Boise, Idaho grew by 11.10 percent year-over-year; home prices in Tucson, Arizona grew by 10.30 percent year-over-year in the third quarter. Lynn Fisher, a senior economic advisor for FHFA, said that home price growth rates in California and New York were lower than the national average.

The top three states with the largest year-over-year home price growth rates in the FHFA 20-City HPI were Idaho with 11.60 percent; Maine and Arizona tied with Utah with 7.90 percent home price growth. States with the lowest rates of home price growth were Illinois with 1.90 percent year-over-year growth, Connecticut reported 2.20 percent home price growth and Maryland home prices rose by 2.40 percent. FHFA reported that home prices have risen for 33 consecutive quarters; this is good news for homeowners, but also creates affordability challenges for would-be buyers facing high home prices and strict mortgage qualification standards.

Be sure to consult with your trusted Realtor and home mortgage professionals regarding your real estate concerns and transactions.

Case-Shiller’s National Home Price Index reported U.S. home prices grew by 3.20 percent year-over-year in July; as compared to year-over-year home price growth 0f 3.00 percent posted in June. Cities with the highest rates of year-over-year home price growth were Phoenix, Arizona with 5.80 percent year-over-year home price growth. Las Vegas, Nevada had 4.70 percent year-over-year home price appreciation and Charlotte, North Caroline bumped Tampa, Florida from the top three cities with home price appreciation of 4.60 percent. Tampa, Florida posted 4.50 percent year-over-year home price growth in July.

Home Price Growth Stalls In West

14 cities had higher home price gains than in June and Seattle, Washington was the only city in the 20-City Index to post lower home prices. Analysts said that after years of rapid and unsustainable growth in home prices on the West Coast coupled with economic expansion and job growth in areas with lower home prices. July readings for home-price growth in western cities that posted double-digit price growth percentages in recent years were far lower. Home prices in Portland, Oregon rose 2.50 percent year-over-year; Los Angeles, California home prices rose 1.10 percent and San Francisco, California posted year-over-year home price growth of 0.20 percent.

High Home Prices Ease Demand Caused By Low Supply Of Homes For Sale

As home prices in many markets skyrocketed, would-be buyers were sidelined by affordability cash buyers and strict mortgage loan requirements. With home prices stabilizing and mortgage rates at near-record lows, more buyers will likely enter the market. This would increase demand on already slim supplies of homes for sale and cause home prices to rise at a faster pace than they have in 2019. Current rates of home price growth remain higher than current inflation and wage growth, but are low enough to encourage home buyers who were previously unable to keep up with rapidly rising home prices.

Seven cities posted higher rates of home price growth year-over-year in July as compared to readings for year-over-year home price growth from June 2018 to June 2019. The National Association of Realtors® said that sales of pre-owned homes were higher in July for the first time in months. The supply of available homes tightened in June; this trend is expected to boost home prices as demand for homes increases.

The National Association of Home Builders Housing Market Index shows steady builder confidence in housing market conditions. September’s index reading of 68 was one point higher than August’s reading. Any reading over 50 indicates that most home builders surveyed view housing market conditions as favorable. August’s original index reading was adjusted upward by one point.

Component readings for the Housing Market Index were mixed. Builder confidence in current market conditions rose two points to index reading of 75; this was the highest reading year-over-year. Builder confidence in home sales over the next six months fell by one point to 70. The gauge of buyer traffic in single-family housing developments held steady at 50. Readings for buyer traffic seldom exceed 50; September’s reading suggested higher builder confidence than the numerical reading suggested.

Average New Home Size Decreases, Builders Confident In Housing Markets

In recent months, builders have focused on producing larger homes, which has limited the number of affordable homes available to middle-income and first-time home buyers. High demand for homes caused by slim inventories of homes for sale and factors including competition with cash buyers sidelined would-be buyers. Home builders scaled down the size of new homes by 4.30 percent during the second quarter of 2019. This trend is expected to encourage potential home buyers into the market as lower home prices and mortgage rates combine to encourage more buyers into the housing market.

Lower Home Prices And Mortgage Rates Increase Affordability

Analysts and real estate pros have long said that the only way to ease demand for homes is by building more homes within all price ranges. Builders did not immediately respond to calls for more homes, but if current builder confidence and a new focus on building affordable homes continues, high demand for homes and short supplies of available homes may ease toward evenly balanced market conditions, but the unknown factor is mortgage rates. If they rise, affordability will be challenged and buyer interest in new homes could slow.

New home prices typically fall as peak buying season ends. Current trends toward building smaller homes, low mortgage rates and lower home prices combined to provide more choices and affordable options for home buyers. If general economic conditions remain strong, more home shoppers could become homeowners.

Don’t panic, a looming recession may be good news for those wanting to sell their homes. The experts say this recession may happen in 2020, so there is still plenty of time to make plans for how to deal with a potential economic downturn.

In many parts of America, especially in popular cities, the real estate markets are super hot for sellers. Home sales are coming in at prices that are record highs. For sellers in these hot markets, it might be time to sell. For buyers, able to wait until next year, the prices may come down.

What The ‘Experts’ Say

A Pulsenomics survey of 100 real estate market experts says that the pressures on the economy, which are negative, are not coming from the housing market this time. In fact, the Federal Reserve announced it will not make any changes until 2021, so the financial market supporting home loans will be coasting along pretty much as it is now.

The damage to the U.S. economy is coming from the delayed effects of the tariffs. Whether one agrees or disagrees with the tariffs is not the issue. The tariff changes that already went into effect, will have an economic impact next year or the year after.

Economists use the analogy of observing a big, slow-moving tidal wave. Scientists can see it coming from miles away. If those potentially affected by the danger pay attention to the warnings soon enough, they may have a chance to get out of the way.

Half the experts see the tariffs having a significant impact in 2020. Most of the other half see it coming in 2021. Nobody thinks the recession will hit before the end of 2019.

Summer 2019 – Selling Time

Home sales toward the end of summer are usually the strongest when compared to other times of the year. After returning from vacation, and before school starts, it is a popular time to look for a home when the weather is still nice outside.

Next Year 2020 – Buying Time

If a recession hits in 2020, then home sales prices may go down due to lowered demand. Again, this may be helpful for buyers who wait until next year to buy a home.

Conclusion

It is interesting to see that any possible recession will not be caused by the housing market this time. Real estate experts think that the housing market will price-in the effect of the recession up to one year ahead of when it hits.

If there are plans to sell a home, such as going into retirement and wanting to downsize or buy an RV for a happy retirement traveling, now may be an opportune time to consider selling.

If there are plans to buy a home and there is no rush, just take the time to work with your real estate agent to get a good deal and wait for a possible overall economic slowdown to get a better price. And be sure to contact your trusted home mortgage professional to discuss your financing options.

Home price growth slowed again in May according to Case-Shiller home price indices. Home price growth slowed for the 14th consecutive month to its lowest rate in 12 years. Case-Shiller’s National Home Price Index showed 3.40 percent growth year-over-year in May as compared to April’s year-over-year reading of 3.50 percent.

Las Vegas, Nevada held its first place position in the 20-City Home Price Index for highest year-over-year home price growth rate at 6.40 percent; Phoenix, Arizona held second place with a year-over-year home price growth reading of 5.70 percent. Tampa, Florida home prices grew by 5.10 percent year-over-year in May.

Home Price Growth Rates Fall In West Coast Cities

West coast cities that posted double-digit annual home price gains in recent years posted less than two percent growth in home prices in May. Seattle, Washington was the first city to post negative home price growth with a negative year-over-year reading of -1.20 percent in May. San Francisco, California home prices rose by 1.00 percent year-over-year and home prices in San Diego, California grew 1.30 percent year-over-year.

This trend suggests that home prices were topped out in terms of affordability as buyers looked elsewhere for larger selections of homes at affordable prices.

Analysts predicted a plateau in home price growth and did not expect steep declines in home prices. Steady growth in wages and jobs could help to ease affordability challenges for home buyers. Lower mortgage rates provided additional opportunity for first-time and moderate income home buyers, but home price growth needs to ease further to help would-be buyers conquer affordability concerns. Shortages of homes for sale are most pronounced for lower-priced homes, where demand is largest. Higher demand for homes during the peak selling season could boost prices in popular metro areas.

If you’re in the market for a new home or interested in listing your current property, please contact your trusted real estate professional.