Wrap Up Report: NMHC 2014 Apartment Strategies Conference
The single-family housing market is back on firmer footing, with new and existing homes sales rebounding and foreclosures abating in many markets. These improvements have apartment executives carefully watching move-out rates to see if a renewed sense of stability in the single-family market has put a new shine on the promise homeownership. For now, industry experts contend that the threat appears minimal, as apartment residents largely appear to be staying put.
During a panel discussion during the 2014 NMHC Apartment Strategies conference, David Crowe, chief economist at the National Association of Home Builders, said the move-up market was largely driving the recent improvement in the overall single-family housing market. "If 2013 was the year of the investor, 2014 will be the year of the repeat buyer," he said.
He added, "It's just not the year for the first-time home buyer. They are saddled with student debt and don't have golden enough credit. The repeat buyer has been the market; you can see it in that homes sold have been at higher prices, which is true in both the existing and new home market."
However, Sam Khater, deputy chief economist at Core Logic Safe Rent, cautioned that the improvements banked by the single-family industry are somewhat overstated. "Traditional metrics such as homes sales and dollar value of mortgages are inflated," he said, pointing to the high level of cash purchases and mortgage refinances as clouding the recovery picture to some degree. "From a new, owner-occupied loan origination perspective, the [volume] level is low, he said. "We're running two-thirds the level of 13 years ago and we're contracting."
Part of the reason the first-time buyer is largely absent from the home buying-market is affordability is a major factor. Interest rates are on the rise at the same time income growth has been soft or even declining for younger people, who also suffered higher unemployment rates through the recession. While employment growth for 25- to 34-year-olds has more recently improved, many still are unable to launch into homeownership because of fiscal constraints tied to student debt loads, low income growth and limited credit. Mortgage lenders have loosed up somewhat on debt-to-income and loan-to-value thresholds, but Khater said many would-be home buyers are getting caught up in credit score requirements.
"FICO is very tight," he said. "It used to be lenders required a FICO of 705, but it peaked recently at about 750. Only about a third of the U.S. has a FICO of 750 or higher."
Given many of these financial hurdles and the growing preference for rental living, many apartment residents appear content to continue renting for some time. However, Crowe cautioned that while many would-be buyers are sitting on the sidelines, he expected many will eventually move toward homeownership.
"The young adults have postponed everything--getting married, having kids, moving out, etc. And I think it's a relatively long-term trend," Crowe said. "However, the preferences are for about the same amount of homeownership as we've had before--but not for some time."
But if many renters aren't ready for homeownership yet, apartment executives wondered if the single-family rental market could offer an alternative housing solution to traditional apartments. Not only has institutional money invested in the niche market, but some developers had even targeted single-family rental communities for ground-up construction. Both Crowe and Khater agreed that while a spotlight has shined on the establishment and growth of a professionally managed single-family rental market, it remains a small fraction of the housing market.
"On the face of it, construction of single-family homes for rent doubled, from 2.5 percent of production to 5 percent of production," Crowe said. "Yeah, there was an increase, but it's still a small share of the market. Plus, the shift [to construction of single-family rentals] was also a home builder response to keep their crews working and keep the doors open [during the housing downturn]. I don't see that as an on-going process."