CoreLogic: homebuyer demographics are shifting, investors are jumping ship

According to CoreLogic’s June MarketPulse report, home prices continue to increase, reaching double digits at 10.5 percent in April 2014 compared to April 2013. Further, the property information, analytics and data-enabled services provider reports that REO inventory is on the rise, reaching 430,000 properties in March of 2014 (the most recent month of reporting).

The company states that overall institutional investor share is falling in many markets, but prices, demand and supply remain attractive in Atlanta, Charlotte, Miami and Phoenix.

“Generation Renter” is on the rise

In the report, CoreLogic Deputy Chief Economist Sam Khater cites the Millennial generation as being slower to marry, and as taking more time to further their education than previous generations, both of which play a tremendous role in household formation (aka buying a house). Further, as the generation struggles to find employment after college, many are living with parents or renting for longer periods of time than past generations.

Khater said, “While Millennials were severely impacted by the Great Recession, they were on a fundamentally different trajectory than their predecessors even before the recession, particularly as it pertains to education, debt and income. The cascading effect of Millennials’ changing economic impact is hampering their ability to achieve homeownership, which puts an increased emphasis on entry-level affordable homeownership, such as condominiums.”

He concludes, “Unlike their predecessors, only a minority of Millennials are homeowners, so perhaps a more apt nickname for this cohort is Generation Renter, or Generation R.”

The overall health of the market today

CoreLogic President and CEO Anand Nallathambi reiterates that we are in the middle of a historic reset in the mortgage market driven by weak economic growth, as well as a number of other factors.

Nallathambi cites four factors that he says will likely change the face of the mortgage market for years to come. In summary:

1. Shifting Demographics – as previously mentioned, “Generation Renter” is bucking the trend of young first-time buyers entering the market at this stage of an economic recovery, and as investors leave the market, Baby Boomers are retiring in record numbers (thus their mortgages are being paid off, or they’re cashing out to pay for a smaller space in full). These two generations are driving the shift in the market.
2. Underlying Health of the U.S. Homebuyer – Nallathambi states, “”Until we see a sustained pathway to job creation and income growth [not generated by “unprecedented fiscal and monetary stimulus”], we will continue to see potential homebuyers hesitate to take on mortgages and purchase homes.”
3. The Unintended Consequences of Low Interest Rates – Homeowners benefited from low interest rates by refinancing, boosting consumer spending power, but only in the near-to-medium term, which could have the opposite effect on home buying. These homeowners may stay out of the housing market longer than they otherwise would have, prolonging the inventory shortage and reducing the pool of possible buyers. Lastly, he cites new government policy that loosens up tight lending, but “likely only modestly.”
4. The End of the Investors’ “Gold Rush” – “There are still pockets of investors around the country, but the properties desireable to investors are dwindling,” Nallathambi observes. “Our research shows that investors are leaving the market and first-time and trade-up buyers will need to step in to fill the void.”

Read the full CoreLogic MarketPulse report for in-depth commentary from company leadership.