Columbia SC housing industry experts say the future of housing for the remaining five months of the year revolves around one word — affordability. Affordable home prices and affordable rents will determine the Columbia SC housing market’s direction.
Although home prices are still on the upswing, the pace is slower that it was during the first six months of 2014. However, mortgage interest rates are rising and the lack of Columbia SC housing inventory is likely to keep prices at a higher level than anticipated.
Columbia SC Housing Market to Remain Lukewarm
Despite renewed optimism in the Columbia SC housing market, the production of new homes has not grown substantially this year. In addition, there is little expectation that that will change between now and the end of the year. Homebuilders are being affected by tighter lending and credit requirements and a shortage of skilled construction and subcontractor labor. These and other factors are reasons that homebuilders aren’t building many spec houses anymore, concentrating on permanent construction projects for contract purchasers.
For the rest of the year, Columbia SC housing market analysts expect a slight rise in new construction, but it will likely be "too little, too late" to cure the inventory shortage.
On the rental side of the Columbia SC housing market, tenants probably won't experience much relief either. Demand for rental units are rising, as more people have entered the rental market as a result of the mortgage crisis of a few years ago. While multifamily housing starts has increased this year, supply has not met demand.
Rental occupancy levels are at record highs, putting landlords and rental management companies in the "catbird seat." And despite some migration from the rental market to the Columbia SC housing home buying arena, those crossing over represent the exception not the rule. It’s expected the remaining five months of 2015 will not see much of a change.
Occupancy is at a record high, and that gives landlords strong pricing power. Renters do not appear to be turning into buyers, at least not in sizable numbers, and the second half of this year will see no change in that. Higher than normal rent has made it more difficult for prospective homebuyers to save money for a down payment, pushing the length of time tenants will stay in the rental market longer.
One area to watch closely over the next few months is mortgage lending activity. As mortgage lenders grapple with new regulatory challenges it will likely cause them to be more cautious. Yet, as interest rates continue to rise, lenders will want and need more mortgage business. Experts look for independent mortgage lenders to gain a larger share of available business by being slightly more lenient, flexible and competitive in their credit policies and practices. Such activity will almost definitely impact the Columbia SC housing market… the question, of course, is how much.
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The market for Columbia SC homes as well as the nationwide real estate home buying market has often placed the blame on recent drops in the number of homebuyers on the Millennials. A new study now shows that Generation X should shoulder part of the responsibility as well.
The rate of homeownership in the U.S. has consistently fallen each year since 2005. New evidence shows that Gen Xers are part of the decline. Owning a home among the age group 35-54 has declined more than any other age group for the past 22 years.
Fewer Gen Xers and Millennials Buying Columbia SC Homes
Harvard University's State of the Nation's Housing 2015 report reveals homeownership among those aged 35-54 has dropped the most of any other age group since 1993, especially those under age 44.
Daniel McCue, senior research associate at The Joint Center for Housing Study of Harvard University said, "The market peaked right when they were at peak first-time buying age."
The generation's older members were particularly unlucky because when they were at the age where most people tend to trade up to larger homes, the housing crisis occurred. "They were subject to the decline in home prices, which made [some homes] subject to distress, underwater and delinquency," McCue said.
The current homeownership rate of 63.7% has been buoyed in large measure by Baby Boomers. This trend seems unlikely to continue for the Gen Xers due to their smaller population. When we look at Millennials, their homeownership rates are low … they have a much higher chance of building careers and catching up, but for those aged 35-44 it's more of a question.
Generation X, which the Harvard study defined as people born from 1965-1984, occupy an important place in today's housing market. As they trade up to larger, more affluent homes, inventory becomes available for new first-time purchasers of Columbia SC homes.
However, the study finds, such is not the case. The number of homeowners aged 35-39 has dropped 23% from 10 years ago.
Gen Xers seem to be staying put in the rental market longer than before. The normal cycle of renting and moving onto homeownership and making room for younger renters to follow isn't happening as quickly.
Furthermore, it appears they may not become buyers of Columbia SC homes any time soon since greater rental demand has pushed rent to new highs, making it harder for them to save money for a sufficient down payment.
In addition, the lack of job and wage growth continues to make ownership of Columbia SC homes a challenge to most and a fiscal hardship to many. In households aged 35-44 incomes are at mid-1980s levels and for people aged 45-54 incomes are at the lowest levels since the late 1960s.
Experts say repercussions and scars from the recent housing crisis have made prospective buyers hesitant to buy. However, Gen Xers could participate in owning Columbia SC homes as those who lost their homes through foreclosures or short sales return to the home buying market.
Of the 11 million homeowners who lost homes to foreclosures during the housing crisis, only about 2 million have returned to the home buying market. It is expected that the market will see a gradual return of the remaining 8-9 million as they convert from paying rent to owning again, but industry experts warn it may take some time to fully realize the gain.
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First time Columbia SC homebuyers are in a trap they can't seem to get out of, and it's called a "Rent Trap."
Everyone has pretty much come to the conclusion that interest rates won't stay low much longer, and home prices continue to rise. New three percent down programs from Fannie and Freddie sweeten the deal for new buyers. FHA’s mortgage insurance premium cut makes FHA affordable again. Incomes are up.
To top it all off, greedy landlords everywhere seem to be practically pushing their tenants out the door, with rents rising every month. Rent vs buy comparisons show renters how much they are losing by staying put. According to Reis, Inc., the average US monthly rent has climbed 14 percent in the past five years—double the rate of home price appreciation. Rents rose 3.5% last year according to Zillow, which forecasts another 3.5% hike this year. Rents are forecasted to keep rising in 2016, though record numbers of new apartment openings are expected to slow down increases to about 2 percent, according to Zillow.
Renters Not Rushing to Become Columbia SC Homebuyers
In what could be considered a reverse trend, rising rents do not appear to be playing a significant role in motivating renters to become Columbia SC homebuyers. This contradicts what some in the housing market think as they expect more renters ought to be actively looking to purchase a home. Rising rents are primarily a sign of increased demand rather than a signal that home purchases will be increasing.
Instead of acting as an incentive to buy a home, rent hikes are keeping renters captive by siphoning off cash that otherwise might have been saved to make a down payment or pay closing costs. Even to save the 3 percent down required of the new Fannie and Freddie programs, it takes two years or more for the average first-time Columbia SC homebuyer to muster enough for a down payment. Every time rent increases, it’s going to take even longer to save enough to become a homeowner.
In the past, renters making the national median income could expect to pay about 25 percent of their income on a typical apartment. Today, renters should expect to spend roughly 30 percent of their income on the median apartment
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A recent S&P/Case-Shiller Home Price Index was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another Columbia SC housing bubble forming?
Economists point to several reasons why this isn’t a concern, namely that while prices keep rising, the rate of growth has slowed. In the first three months of this year home prices gained 0.8%, according to the S&P Case-Shiller national index. That’s down from 2.8% in the first three months of 2013 and 1.2% during the same period of last year.
Over the long-term, housing has tended to rise about 1% annually above inflation. According to the Bureau of labor Statistics, $1 in pre-bubble 1997 is $1.46 in 2015 dollars. A 1% gain over the past 17 years adds 18.4%.
If we add inflation and a 1% annual gain, we find a historically justified target around 110 on the Case-Shiller index.
The chief economist for the National Association of Realtors has gone on record as saying that prices could surpass the peak set during the last housing boom…
Economists also aren’t concerned about a Columbia SC housing bubble because far fewer new homes are being built than a decade ago so there is little concern about oversupply. And most buyers are using cash or getting 30-year, fixed-rate mortgages that don’t carry the same risks as the sub-prime, adjustable-rate mortgages that many received during the boom.
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Some economists said that’s a sign of a normal housing market because in a bubble prices typically rise in tandem across the country, rather than responding to the strength of local economies. That doesn't seem to be happening now, which is strength for the argument that a Columbia SC housing bubble is not in the picture, at least not for now.
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Ten years ago, Columbia SC home prices were unquestionably too hot. As few as four years ago they were too cold. Now, it would seem as if Columbia SC home prices have returned to some form of sanity when compared with incomes, rents and other fundamentals, while rising at lower single digit rates.
Columbia SC home prices seem to be settling into a balance in which buyers are comfortable spending what they can afford given their income and savings, but aren't willing (or able to persuade lenders) to stretch beyond that. Among buyers there is neither a sense of desperation to buy now on the assumption prices will rise rapidly, nor of fear they will plummet.
For a while in 2013 and early 2014, Columbia SC home prices were rising at a double-digit percentage rate, which if sustained could have rapidly led housing back to its bubble-era extremes. But the reality — of caution on the part of home buyers and their lenders — took over. In the 12 months ended in March, the S & P Case-Shiller national home price index rose only 4.1 percent, not much higher than the rise in Americans' incomes and broadly consistent with longer-term trends.
Columbia SC Home Prices Dependent on Mortgage Rates
The collapse that began in 2007 created a different set of problems, as the lengthy process of foreclosures and short sales dragged out, and the only buyers in the market seemed to be investors looking to buy cheap houses to rent out.
Now, investors are retreating as prices recover, and people buying houses to live in are returning — though not with the fervor and pay-anything sensibility of a decade ago.
The fact that the relatively balanced Columbia SC home prices of today are dependent on mortgage rates being near historic lows does create some risks. If rates were to rise abruptly, it could sharply reduce housing affordability and push down prices.
It all depends on why rates rise, and how quickly. If rates are rising because of stronger economic growth, the housing market should be able to absorb the hit and it will be perfectly manageable. But if mortgage rates rise for external factors or for reasons not warranted by growth in the economy, it would be damaging.
In other words, a reversal in the era of low interest rates and cheap money wouldn't have consequences just on Wall Street. It could matter a lot on your street as well.
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