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The Kiplinger Letter Reports-Immigrants will account for 36% of home ownership growth this decade, compared with just 5.5% in the 1970s. For them, owning their own home remains a big part of the American dream. And many of the big wave who came to the U.S. in the 1980s are not financially secure enough to afford the purchase. The other major demographic push for home ownership is losing steam. Today’s young adults are delaying buying a home or forgoing it altogether. Why? The tougher job market, big student debt burdens and skimpier savings all contribute, but millennials are also staying single or coupled but childless longer, so they prefer the freedom of renting to the joys and burdens of home ownership.

Soaring growth in multifamily housing construction will peter out this year. Nationwide, apartment and condo building starts are close to the 2000-2008 average and over three times as many as the low hit in 2009. For 2014, about 164,000 new apartments will come on the market, nearly 42,000 of them in three Texas cities alone: Dallas, Houston and Austin. About 18,000 in Washington, D.C. Big growth also in Denver, NYC and Seattle, while in Las Vegas, Detroit and Cleveland, among others…fewer than 1,000 each. Smaller rent hikes…a bit over 3% in 2014, then sliding further for the next several years. Modest income and job growth, combined with the bulge in building completions, will make it tough for landlords to command much higher rents, crimping profits. Look for commercial real estate lending to loosen up this year. Banks, keen to offset waning refinancing demand and slower gains in home buying, will compete more vigorously for multifamily housing and commercial mortgages. About a 5% jump in the number of those mortgages is in the cards. Fewer choices offered to jumbo home mortgage borrowers are likely. Some repayment options would put the loans outside rules protecting lenders from claims that they knowingly put buyers in unaffordable homes. So banks aren’t likely to allow options such as balloon payments and interest-only mortgages. And if a lender does lend outside qualifying mortgage rules…good odds that borrowers must buy private mortgage insurance even if they pony up a 20% down payment.

After big rebounds in housing prices, more modest gains are likely this year. Appreciation in home values (national average)…up 4%-4.5%, compared with a gain over 11% in 2013. One reason, rising mortgage rates…5% or so for 30-year fixed rate loans by the end of the year. Tighter lending rules will also contribute, especially sapping first-time buyer demand. A harder line on debt-to-income ratios used by lenders to qualify borrowers will hurt younger potential buyers, who have seen little wage growth in the past few years and are often shouldering large student debt loads. Fewer investors offering all-cash deals, too, with bargain prices and interest rates fading away.
Plus more existing homes will go up for sale, as price hikes pull homeowners out from mortgages that are underwater making them more willing to sell. Sales will climb by 4%, but inventory won’t be as tight. And new-home building will accelerate again, helping to offset the construction drought of 2008-2012. Look for housing starts this year to climb by 15% and top 1 million for the first time since 2007. Still, far below the 2005 pace. Sales of new homes…an additional 16%, a tad less than last year’s increase.

Affordability, though declining, is still better than the historical norm: A median-price home costing 20% of household income. In 2013, it took just 15% of income to buy an equivalent home. When mortgage rates rise to 5%...17% of income.

All things considered, the price slowdown is good news, signaling a pattern of sustainable, long-term growth and alleviating fears of another bubble in the works. Annual price gains and the pace of existing-home sales are close to normal. But there’s still a long way to go till home building is back to good health.

(The Front Page News is provided by the NOCBOR Government Affairs Committee)

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