Could a Millennial be your home buyer?

The article below paints a positive view of the potential for the Millennial generation to be the next wave of first time home buyers.  The thought is that with low interest rates and access to money, and with home prices at historic lows, they may make the decision to enter the buying market even though they have been putting off marriage, (a good sign of a home buyer) until later.  If you own a home that could be considered entry level, you might want to take a look at your finances and decide if this is a good time to try and list your property.

By Katherine Tarbox, Senior Editor, REALTOR® Magazine

In 1993, the term “Generation Y” first appeared in Ad Age, to describe the age group who was about to embark on their teen years. While generations usually don’t have strict years to confine a group, most put the start of Generation Y — also known as the Millennial Generation, Generation Next, and the Echo Boomers — at the year of 1982 and the end at 2000. This year the first Millennials will begin to turn 30, a sign that this generation is growing up. It’s also a good sign for the housing market.

The Millennials are primarily the offspring of the Baby Boomers (those born from 1946 to 1964) and older Gen Xers. During the ‘50s and ‘60s, the average births per year in the U.S. went from 2.8 to 3.4 million per year and reached 4 million in 1964. While birthing rates dipped in the late ‘60s and ‘70s, in 1982 they began to spike up near that 4 million mark (hence, the nickname “Echo Boomers”), which again created a boom the in population. And this growing population is ready to enter the housing market.

There are some things working against this generation, though. They remain the most underemployed age bracket, with some economists putting their employment-to-population ratio at 45 percent, the lowest it’s been in 60 years. It’s hard to peg the employment rate for this group as many have been forced to take part-time jobs when they are qualified for higher work.

In addition, a study released by the Pew Research Center last month shows that Millennials are waiting a while to take those wedding vows: Just 20 percent of those aged 18 to 29 are married. That’s a crucial driver of home ownership: According to an August 2011 study by the University of Chicago study conducted by Jonas D. M. Fisher and Martin Gervais, single people are more likely to rent.

The positive news: With low interest rates and low prices, this generation is eager to buy, according to a study conducted by the University of Michigan’s Survey of Consumer Attitudes, which polled 6,000 households. First-time buyers are critical to housing, as they allow other sellers to move to the upper ranges of the market. The study also said that the recession has done little to affect Americans’ overall attitude toward buying a home.

Of course, many Millennials are looking to rent. As NAR Chief Economist Lawrence Yunpoints out in his November 2011 column, a stronger rental market will lead to a stronger housing market. As rents increase, more will consider the cost of owning vs. renting, and may tip some to buying. Also as investors enter the market to buy rental units, they are helping to drive prices up, such as in the Miami market, which finally saw prices rise last year. Yun estimates that Miami could see 10 to 12 percent appreciation in 2012, and other markets could follow.

Eventually, though, members of this generation will settle down, and when they do, they’ll need housing. And if the economy continues to improve, 2012 might be the year they start to do just that.

Echo boomer impact on the home buying market

So the question becomes, why is this so?  I believe is is the easier access to borrowing.  Our parents, and my generation were much more likely to save up to buy, than to purchase a home with very little downpayment.  The relaxed lending standards have helped get more people in homes, but at the same time, with house prices so at risk to market swings, the echo boomers have much more to lose in a downturn,a nd perhaps in many ways may be contributing to the current low pricing in the market?

Report: Pay Attention to the Echo Boomers

DAILY REAL ESTATE NEWS | FRIDAY, JULY 13, 2012

The echo boomers — those born between the late 1970s and early 1990s — are expected to help drive a housing market recovery in the coming years, according to a new report by Harvard University’s Joint Center for Housing Studies. 

Already, this generation is outpacing the number of baby boomers who at the same age were home owners. Studies show that about 900,000 households are made up of echo-boomer home owners, which compares to 500,000 baby boomers who owned homes at the same point in their lives. 

About 31 percent of echo boomers have already made a recent home purchase, according to data from the National Association of REALTORS®. 

That number is expected to grow, according to housing analysts. About 5 million echo boomers turn 21 every year. According to KCM, a market and real estate commentator, echo boomers will likely add 1 million new households per year over the next decade. 

Source: “Echo Boomers Are Becoming a Contributing Factor to Housing Recovery,” Business Insider (July 11, 2012)

Will hiring that requires relocation pick up with news like this?

I was reading through the daily real estate news yesterday and this article caught my eye.  Having been in the job market for quite a while, I was told several times, even by John Tesh, that companies were looking to hire people already working, rather than those unemployed currently.  Because these employees are often found in other parts of the country, the ability to recruit and hire them has been hampered by the barriers related to the sale of the current home.

This is a major impediment, the cost of relocating, with so many homeowners underwater due to lower initial down payment requirements.  However, if homeowners get a renewed sense of optimism, we could see a greater willingness to move, impacting the jobs market with the subsequent trickle down impact on unemployment.  This would possibly be due to the unshackling of the homeowner from his or her perception of loss.  In the real estate world, there is still a reluctance by many people to take less than they paid for their homes.  This is actually one factor impacting the rise in home sale prices.  So many of those whose houses who lost value are holding on, while those in more profitable areas of the country are selling.  Higher end homes are also selling.

The real questions still remain unanswered, but there are some words coming out of the real estate business that says the market has hit bottom, and is on the way up.  This, combined with record low mortgage rates may create a situation where the average days on market will decrease.  Mitigating this somewhat is the fact that many of the backlogged foreclosures have begun processing, meaning a possible glut of these homes by early next year.

What does this mean for you as an employer seeking to bring in the best talent from outside?  Well, first, I would recommend using as many analytic tools and good interviewing techniques as possible to assure yourself of a desirable candidate.  Then, you might consider a guarantee on the sale of their home.  Give them the money to pay six months of mortgage or rent payments in the new city, then agree to purchase their home at market value after the time is up.  Make this arrangement prior to their signing with a real estate agent, so that you would not have to pay the commission if their six months with the agent expires. My company can assist you with this plan should you be interested.

Bottom line, if ever there was a time to make a riskier offer to hire from afar this might be it.

DAILY REAL ESTATE NEWS | FRIDAY, JULY 13, 2012
Rebounding home prices are lowering the number of home owners who are considered “underwater” on their mortgage, according to a new report by CoreLogic.

More than 700,000 home owners are no longer considered “underwater,” owing more on their mortgage than their home is currently worth.

At the end of March, 23.7 percent — or 11.4 million — of home owners with mortgages were considered underwater on their mortgage, according to CoreLogic’s latest report. Three months prior, that percentage was 25.2 percent, or 12.1 million home owners.

Mark Fleming, CoreLogic’s chief economist, attributes the decrease to recent gains in home prices, a drop in for-sale inventory, and fewer distressed sales, which are all helping more home owners see the values of their houses increase.

About 1.9 million home owners were 5 percent underwater during the first quarter. If prices continue to inch upward, these owners are expected to climb out of underwater territory, according to CoreLogic.

"While the overall stagnating economic recovery will likely slow [the] housing market recovery in the second half of this year, reducing the number of underwater households is an important step toward reducing future mortgage default risk," Fleming says.

Source: “700,000 Home Owners no Longer Underwater on Mortgages,” CNNMoney (July 12, 2012)

What does the foreclosure risk mean about home sales timing?

Recent wire reports indicate that Banks have finally caught up with the mess they created around foreclosure activity a year ago.  Because of paperwork mistakes and carelessness, many homes that could and should have been foreclosed on in 2011 held out into this year.  The banks have begun preparing to place a new wave of these foreclosed houses on the market, probably by early next year.  In June, the number of houses entering the foreclosure process increased on an annual basis for the second month in a row.

A glut of foreclosed houses added to the market will likely exert downward pressure again on home prices, making the purchasing of a house even more cost effective, but importantly, bought to live in long term, not as an investment.  There is no indication of a rapid rise in home prices that would make adding a foreclosed home an investment diamond.

Now, for those of you who are considering selling your home in the next year or so, you should think about a couple of things.  First, if you have enough equity to get through the sales process, there should be some very good value homes on the market entering next year.  Secondly, if you wait until the early part of next year to sell, you may be faced with a lower market price than if you sell before the foreclosed homes hit.  Third, if you have the patience to wait, begin adding $50 per month to your house payment to increase the equity in your home.  Accelerate the pay-down of any second mortgages, with a plan to get them off your books within 18 to 24 months if possible.  Then, when it becomes clear that the real estate market is cycling back up, you will be in a much better position to sell with equity available for your next purchase.

At least that is my opinion.  What do you think?

If you would like a free competitive market analysis, to get an idea of what your home is worth right now, let me know and I will arrange for you to have this done.

If Mortgage rates are so low, why aren't people buying?

According to recent wire reports, the 30 year mortgage rate is now 3.56 percent, and 15 year mortgages, a good refinancing option are now down to 2.86%, a new record.

So why aren't people rushing out to buy houses with these great numbers?  Well, first off, which houses would they buy.  Existing homes that would a desirable step up are in many cases owned by people who are not ready to put their houses on the market until they appraise higher.  Additionally, in order to buy a new house, those who would move up have to sell theirs, and while there are many potential first home buyers, those who started out with 80-97% mortgages may have negative equity in their homes, much less the funds available to pay for the real estate commissions and other selling expenses.  Buyers continue to demand help with closing costs as well as continuing to push other transactional costs onto the seller to reduce their out of pocket expenses.

So, what must change?  In my opinion, a conscious decision by those with enough equity to sell at a profit, no matter how small, to sell the home they are ready to leave, and go ahead and purchase their next home with a reasonable down payment from savings.  This decision is not easily made with strict financial calculations, it is going to be about long term contentment.

Questions for Strategic Imagination

So, you are in business, and your company has a strategic plan?  What is the thing that you find most challenging about it?  What would you like to be different?  What is the question, where if you had an answer, could change the success rate of your organization?  Wisdom Selling would like the opportunity to address your question.  Please like us on Facebook and enter your questions, or join our group on Linkedin.

The more practice we have in applying this technique, the better our ultimate product offering will be.

Thanks.

Using Imagination in Strategic Planning - Introduction

Does your plan give you enough room for flexibility? Is there any opportunity for you to reach your destination in another way than the specific roadmap you have written down?  Imagine if the only way to get from your town to another, such as from Spartanburg to Greenville was the Interstate, and you knew you had to be there in the 33 minutes. This should be no problem, right, because that's how long Google map says it takes to get there. So you tell your most important customer that you're going to be in Greenville in 35 minutes, and you take off down the interstate.

A friend of mine had a meeting in Greenville the other day, and as he was heading down the interstate, a truck coming the other way hit a sign which stretched all the way across the interstate knocking it down.  The sign was blocking traffic in all six lanes of traffic, three in each direction. My friend was just past the previous exit and not able to reach the next exit, so he was stuck on the interstate for an hour and a half. He ended up having to cancel his seminar and send 30 potential customers back home.  He had no flexibility or other options.  He couldn't imagine or create a different route, because he never been to Greenville before and all he knew was the interstate.

Now those of us who've lived here a while know that you can take Highway 29, or a myriad of other back roads and end up in Greenville as long as time is not the critical factor. Any time you travel on Highway 29 you know you're going to have 30 stoplights to navigate, and there is a random number of times you'll get green and time to get red.  I say it's random but I actually believe that the red lights are timed to match how much of a hurry we are in. I know they get me every time I'm in a rush.

You might look at the trip from Spartanburg to Greenville and think it is just crazy that the only way you allow yourself to get there is the Interstate. You would certainly know the other ways, or you would have a map that showed multiple routes to get there, and since you have been there before, you wouldn't commit to a time that didn't allow you to deal with any risk any traffic any slowdowns, or anything that might delay you like a phone call where you have to pull over and look up some information in a notebook you carrying with you.

We would not commit to do something that doesn't make sense from a trip standpoint, and yet we as company leaders often plan our future - the next 12 months or the next 24 months - as if there's only one way for success to happen. The organization will sell a certain amount, at a certain margin and at a certain price to a certain group of customers beating a certain group of competitors to the punch and everything they do will be sustainable. The organization is confident the market will not change and are confident that they will get all the business that they need out of this deal.

The reality of strategic planning is that anything we’re looking at for the future is full of unpredictability. The science of risk management is all about mitigating your risk by planning for different scenarios. Strategic Imagination is the same process, in that we use our imagination to come up with alternative scenarios, multiple paths to success and ways to hedge our bets for maximum success opportunity. We know that success in itself can be defined in a number of ways for almost any company.  We don't necessarily have to give our plan goals one set of criteria and consider ourselves successful only if we hit those criteria in the time frame allotted. Can you imagine your company as successful, with a different set of goals than you currently have today? Can you imagine reach your goals in a shorter or longer period of time than you have given the company to do so? Can you imagine having a set of shareholder benefits of working with your company that can vary, based on what you need them to be, in order for the company to be most successful? Would you want to give your shareholders a dividend when you need that money to reinvest, or would you want to give your shareholders a dividend so that they will continue to buy and keep this help the share price up, so that you can sell shares and generate capital for the company?

There are all sorts of options out there for strategic success, but we need to be able to dream a bit in order make them reality. And that's what Strategic Imagination is all about. Stay tuned for more and send us your strategy questions.