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Housing affordability conditions hit highest level in history

Economic indicators are improving in housing, but there are factors that many are overlooking, blinded by good news, but the outcome is still uncertain and a recovery is not necessarily imminent.

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Housing affordability on the way up

Despite a dismal economy and a shifting buyer pool, housing affordability conditions have reached the highest level since recordkeeping began in 1970, according to the National Association of Realtors’ (NAR) Housing Affordability Index (HAI).

NAR determines affordability by measuring the relationship between median home price, median family income, and average mortgage interest rates. When the HAI is high, the purchasing power of a household is high as well. NAR notes, “An index of 100 is defined as the point where a median-income household has exactly enough income to qualify for the purchase of a median-priced existing single-family home, assuming a 20 percent downpayment and 25 percent of gross income devoted to mortgage principal and interest payments.”

The caveat: first time buyers

While affordability for most is high, NAR notes that first time buyers making small down payments are not enjoying affordability levels of that of repeat buyers.

NAR President Moe Veissi, broker-owner of Veissi & Associates Inc., in Miami, said this latest data underscores buyer opportunities in today’s market. “This is the first time the housing affordability index has broken the two hundred mark, meaning the typical family has roughly double the income needed to purchase a median-priced home,” he said. “For buyers who can qualify for a mortgage, now is a very good time to become a homeowner.”

Projections of continued improvement

NAR projects the affordability index for all of 2012 will be at an annual high, with little movement in mortgage interest rates or home prices during the year.

“Housing inventory levels have declined to a point where conditions are becoming much more balanced in much of the country,” Veissi said. “If access to credit improves, we could see a much more meaningful increase in home sales and broader stabilization in home prices with modest gains in areas with stronger job growth.”

Not so fast

While the largest trade association in America is optimistic, albeit cautiously so in recent tradition, AGBeat columnist, Jeff Brown notes that a real estate recovery is not imminent, pointing to the four million to six million homes entering, leaving, and inside the foreclosure pipeline.

Brown notes that those millions of homes aren’t going away. “When the pipeline is cleared, the clog removed, we’ll be back to looking forward to a recovered real estate market. It should be an interesting look back in around 3-9 months. The mistake that might be in play here, is that the fundamentals haven’t changed. Sure, reduced inventory is a fundamental. But, if said inventory was reduced as a consequence of a short lived ‘hairball,’ then the fundamental never really changed, did it? Not from where I sit.”

Rentennials don’t plan to buy

Additionally, a real estate recovery hinges upon buyers coming back to the market, but with an entire generation (the next generation of buyers) opting to rent and shedding the stigma of renting, the “Rentennials” are purposely choosing not to buy.

Good.is columnist, Mark Bergen recently wrote a critical piece on the topic, noting that as a Millenial, he’s not unique in that he rents. “I’m not alone: in unprecedented droves, our generation is opting to rent. We’re doing it in major cities, where renting has always been plentiful, and in smaller ones, where it hasn’t. A stream of recent articles has arrived wondering why Millennials aren’t buying homes. The stories paint us as victims of rising rents, saddled with student debt and a crappy economy that keeps the American dream out of our reach.”

Bergen continues, “But what if renting wasn’t our curse? What if, instead, we celebrated and embraced it? By many counts, renting is a financially savvy move. It can free us up for careers and lives in ways that ownership cannot. And the more of us who rent, the more opportunity we have to alter a system that is stacked horrendously against renters.”

The takeaway

Affordability is on the rise, as are other housing indicators that spell for a healthier market, but with millions of homes clogging the foreclosure pipeline and an entire generation choosing to rent, a recovery is not as black and white as we all may have hoped, and we haven’t seen this movie before, so instead of repeating a past economic cycle, buyer behavior might dictate a different end to this movie.

Tara Steele is the News Director at The American Genius, covering entrepreneur, real estate, technology news and everything in between. If you'd like to reach Tara with a question, comment, press release or hot news tip, simply click the link below.

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23 Comments

23 Comments

  1. John Slocum

    March 7, 2012 at 11:42 pm

    With Consumer Confidence finally starting to show better readings, our market is starting to see a surge of pending home sales — much better than this time last year. I wouldn’t count out the Millenials as a material part of the home ownership equation just yet.

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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