Pundits get anxious whenever a real estate report is released. Last week, the National Association of Realtors® released its report of existing home sales in April and the year-to-year total sales comparison was not good. Still, prices were up and the volume of sales improved from March. Sales of new homes in April took a big jump, according to Friday’s report.
As economist Tim Mullaney wrote for MarketWatch.com last week, there is little wrong with the housing market that an improvement in the jobs market would not cure. Even without a big boost in jobs, he emphasized five strong points about housing right now:
1. “Affordability is really, seriously good.” Affordability is based on the relationship between median home price, median family income and average mortgage interest rate. A typical buyer with good credit can currently afford a house that is $50,000 more expensive than the current median priced home. This is due in part to the continued low-level of mortgage interest rates. Buyer’s aren’t jumping on the homeownership band wagon as fast as they could.
2. “Student loans matter, but less than you may think.” They typical graduate repays his or her loan by their early 30s and buys their house at the same time. (I finished repaying my loan debt in the 1980s when I was 34 – so not much has changed, but perhaps I wasn’t “typical for the times.) The problem is in more expensive markets where two-earners are needed to afford homes. But in most cities, first-time home buyers can afford homes even with student loan payments.
3. “Where have buyers been? In grad school.” I found this really interesting, and encouraging: “Concern about first-time buyers has been driven by NAR stats showing the percentage of first-time buyers to all buyers slipping to 38% from 40%. That’s not huge, especially when you look at the 1.8% annual climb in graduate school enrollment, to 1.7 million, between 2002 and 2012, according to the Council of Graduate Schools” They will generally earn more with graduate degrees.
4. “The car recovery shows the way for housing.” (A little pop-psychology of Millennials.)
5. “Easier housing credit is coming.” We don’t need to ever return to the days of “no doc” loans, but credit has been too tight. Last week, the Federal Housing Finance Agency said it is taking technical steps to make mortgage lending easier for banks. The past year has already been better than any time since 2009. The average credit score for loans acquired by Fannie Mae has declined 16 points, to 741, in the past year.
Overall, every housing metric that looks bad, and gets cited by pundits, is better than it was in 2012. We could do better with the economy, but things are on the upswing.