The housing market's gradual resurgence has evidently caused some movement within the longest-tenured homebuying demographic - those 55 and older.
According to the most recently released Housing Market Index from the National Association of Home Builders, the 55+ demographic continued to exhibit improvement in various housing trends during the third quarter of 2013. In all major corners of the market - single-family homes, multifamily rentals and condominiums - builder confidence is on the rise. In particular, the single-family index rose 14 points to 50 - its highest third-quarter figure since 2008, when the index was created and before the market downturn took effect. It also was part of the eighth consecutive quarter during which year-over-year gains were exhibited, reported National Mortgage Professional Magazine.
Better than it's been in a while
Index numbers below 50 essentially indicate that more buyers are pessimistic regarding market conditions than are optimistic. Confidence from builders really hasn't existed since before the recession, something the index's trajectory supports. But as home prices have risen, especially in coastal metro markets like Boston, New York, San Diego and San Francisco, dwindling inventory has brought about a renewed viability within the homebuilding sector, thanks also to a slowly stabilizing economy featuring more capable prospective buyers.
Based on NAHB data, that consumer confidence has carried over to older home shoppers, many of whom have found themselves with renewed equity after emerging from mortgage or credit debt.
"We have seen steady improvement in the 55+ housing sector as buyers and renters are attracted to new homes and communities that offer the lifestyle they desire," said Robert Karen, chairman of the NAHB's 50+ Housing Council and a managing member of the Symphony Development Group. "Although the market is significantly stronger than it has been in recent years, we still have a ways to go to get back to full production."
Separate indexes for the single-family and multifamily sectors measure builder sentiment based on a number of factors, including current sales, prospective buyer traffic, and anticipated sales levels for the foreseeable six months. Optimism was displayed especially in terms of sales expected over the next six months. Aside from the renewed purchasing power the 55-and-older demographic possesses, having generally recovered from the recession-induced ills of the past few years and gotten out in front of their mortgage payments and other debts, there are a few other factors playing out within the housing industry that support that outlook.
A market favoring builders, buyers and sellers?
The Federal Reserve's $85 billion-per-month bond-buying program will apparently not be tapered, as was previously expected, anytime before the new year. It could be April or later - the Fed has been intentionally vague in terms of timetables - before the purchasing pace is reduced, meaning mortgage interest rates will be held down around their currently low levels. That could be contributing to the prospectus, as many buyers look to capitalize on opportunities that remain favorable by historical standards.
In addition, CNN Money recently reported that some banks will be offering mortgage loans with attached down payments of as little as 5 percent, in response to rising costs associated with loans from the Federal Housing Administration. Since the market downturn, FHA loans have been accompanied by minimum down payments of 3.5 percent, with a portion of that allowed to be derived from a family member "gift," so theirs have been the most attractive for borrowers with otherwise-limited options. But in taking on so much loan-induced risk, the FHA has gradually incurred increased costs and been forced to jack up its insurance premiums. Those premiums have led many borrowers to look elsewhere, and now lenders like TD Bank, Bank of America and Wells Fargo have stepped in to fill the void.
And while older borrowers and retirees may not be the most likely to pursue loans with such low down payments, they are no less attracted to deals than any other segment of the homebuying population. That's especially true if they can take advantage of demand levels that have swelled in certain, high-priced areas where inventory is limited. Selling, in other words, has again become a viable course of action.
"Right now the positive year-over-year increase in confidence by builders for the 55+ market is tracking right along with other segments of the homebuilding industry," said David Crowe, chief economist for the NAHB. "And like other segments of the industry, the 55+ market is improving in part because consumers are more likely to be able to sell their current homes, which allows them to buy a new home or move into a new apartment that suits their specific needs."
So while transitions within the Fed and the impending transfer of capital away from government-sponsored enterprises Fannie Mae and Freddie Mac might portend a different landscape in a year or more, the immediate future of the housing market is rather bright.