Buyers and homeowners face hurdles
despite a strong real estate recovery
By Erik J. Martin
CTW Features
Home values and selling prices are up. Mortgage interest rates remain low, and demand for housing remains high. More formerly underwater owners have climbed above the surface. Sounds like ideal conditions for a healthy and vibrant real estate sector, right?
In the past, the answer would be an unequivocal yes. But in the present, the robust housing rebound currently under way comes with caveats, especially for prospective homebuyers — or so suggests The State of the Nation’s Housing report, recently released by the Harvard Joint Center for Housing Studies.
According to the report, numerous challenges continue to hinder the housing recovery, despite strong demand for rental properties, increased construction of single-home residences and growth in incomes. These challenges include a rise in income inequality over the past 10 years (between 2005 and 2015, households earning less than $25,000 represented almost 45 percent of the net growth in U.S. households), stricter mortgage lending practices and a tightening supply of homes for sale or rent. The report further indicated that 11.4 million households forked over more than 50 percent of their incomes for rent in 2014, and 13.7 million people lived in neighborhoods of concentrated poverty between 2000 and 2014.
“We are in a new housing crisis in which there is a serious lack of housing that the middle class can afford,” says Kevin Finkel, executive vice president of Resource Real Estate in Philadelphia. “While there are plenty working Americans who want to rent, affordable apartments are increasingly hard to find. Almost all new multifamily construction is taking place in the luxury market, and no one seems to be building new middle-class rental housing. And the American workforce has experienced years of stagnant wages and can’t easily qualify for mortgages, and millennials are burdened with student debt, which impacts their ability to qualify for mortgages.”
John Agostinelli, a Boston-based real estate broker, says one of the biggest problems is that home price appreciation continues to outpace growth in wages, which places more burden on mortgage payments.
“We are finding that it is more difficult for first-time buyers, as the inventory is very low in most markets and sellers are often receiving multiple offers,” Agostinelli says. “In addition, millennial preferences are shifting back to urban areas, where prices are typically higher. And we have an increasing population and household formation with a shortfall in new construction. Restrictive zoning laws need to be addressed, as they limit the number of units that are allowed to be constructed.”
The bad news is that homeownership will continue to face the headwinds created by a backlog of homes in foreclosure, tight credit, weak income growth and impaired credit histories, according to Colby Sambrotto, president of USRealty.com. The good news is that, “as these pressures ease, there is every reason to expect homeownership rates to show some increase,” Sambrotto adds.
To help overcome these and other challenges in order to afford and own a home, prospective buyers need to purchase within their means.
“Assess your assets and income, and stick to the 30 percent rule — do not spend more than 30 percent of your income on housing,” says George Donohue, president of New York City-headquartered IPG Real Estate. “Also, contact a great real estate professional who can assist you in finding the best house within your budget and negotiate down the price so it is more suitable.”
Additionally, “first time buyers should learn how to manage a personal budget and get educated about the total costs of owning a home and the risks involved, including maintenance costs utilities, real estate taxes, the potential for job loss and emergency savings,” Christopher Michaud, broker with Acceptance Group in Westford, Massachusetts.
Agostinelli agrees.
“Since existing debt makes it more difficult to purchase a home, serious consideration must be given to delayed gratification, saving prior to purchases, limiting debt and establishing good credit.”
© CTW Features
