Business News

Industry Wrap: Affordability Becomes the Hot Topic of 2016 in Home Building, Buying and Renting

By Laura Haverty | January 28, 2016

Industry Wrap: Affordability Becomes the Hot Topic of 2016 in Home Building, Buying and RentingThursday’s Industry Wrap summarizes important news and events each week from around the housing finance industry. Material on external websites may be subject to publisher’s access policy.

Economists: Affordability Constraints May Slow Housing Market Growth

“Housing affordability constrains as expansion matures,” the theme of Fannie Mae’s Economic & Strategic Research (ESR) Group’s 2016 housing market outlook, is echoed this week by industry groups reporting on home prices, buying trends and rising rents. “Continued rent increases will hinder renters’ ability to save for down payments,” explains Fannie Mae’s Chief Economist Doug Duncan. Compounding the problem is the current shortage of starter homes available for sale, which is keeping many potential first-time buyers – who are a key driver of housing growth – from entering the market, he notes. "At the lower end, where the housing market really needs to build, builders aren't building to that space – so we've got a real supply problem," Duncan told CNBC’s Closing Bell. That’s why it was refreshing to see builder DR Horton’s “no options, no frills” homes featured on CNBC this week. (Read ESR’s 2016 Outlook)

Zillow: Expect Rental Growth to Cool in 2016, But Affordability Problems to Remain

According to the Zillow Rent Index, median U.S. rents were growing at a 3.3 percent annual pace In December. Zillow is forecasting the pace will slow to 1.1 percent nationwide by December 2016 because apartment developers have ramped up in a number of large U.S. markets in the face of high demand, and more rental units are coming online. Despite the slowdown, Zillow expects rents to remain unaffordable in many of the major markets across the U.S., especially on the West Coast. Renters in San Francisco and Los Angeles, for example, can currently spend more than 40 percent of their income on a rental payment, and are not likely to see rents go down this year. To the contrary, median rents are expected to rise this year by 2.8 percent in Los Angeles and 5.9 percent in San Francisco – both well above the national forecast. (Read report)

Builder Finds Key to Selling New Homes: Make Them Affordable

In an interview with CNBC, top executives at DR Horton report a growing appetite for their no-frills affordable “Express” homes, priced between $120,000 and $150,000. The brand has solid footing in Texas, the Carolinas and Florida, notes CNBC, and is now expanding into Southern California. Homes in California will sell for more than $200,000, still at the low end of a market in a state where the median home price was just over $489,000 in December. "They (DR Horton) are doing the best job of any of the large builders executing at entry level, and I think you have to have that as you go through 2016," homebuilding analyst Stephen East of Evercore ISI tells CNBC's Squawk on the Street. "Our field research is showing that the builders are starting to rotate toward that entry level, but it's going to take a few years to get there," he adds. (View interview)

Black Knight: Home Prices Maintain Trend, Move Higher

Home prices trended higher in November, rising 0.1 percent from October and 5.5 percent on a year-over-year basis, the latest Black Knight home price report finds. This put national home prices up 27 percent since the bottom of the market at the start of 2012 and just 5.3 percent below the June 2006 peak. New York led gains among the states for the fifth straight month, seeing 1.2 percent month-over-month appreciation, the report says. (View press release)

Existing-Home Sales Surge in December, Says NAR

After last month's turnaround (the largest monthly increase ever recorded), sales of existing homes are now 7.7 percent above a year ago, says the National Association of Realtors® (NAR). Additionally, the percent share of first-time buyers was at 32 percent in December (matching the highest share since August), up from 30 percent in November and 29 percent a year earlier. First-time buyers in all of 2015 represented an average of 30 percent, up from 29 percent in both 2014 and 2013. "First-time buyers were for the most part held back once again in 2015 by rising rents and home prices, competition from vacation and investment buyers and supply shortages," says Lawrence Yun, NAR’s chief economist. "While these headwinds show little signs of abating, the cumulative effect of strong job growth in recent years and young renters' overwhelming interest to own a home should lead to a modest uptick in first-time buyer activity in 2016." (Read the press release)