Baby Boomers in Position to Control Market’s Direction

Baby boomers and other homeowners over the age of 55, which number about 67 million, control about two-thirds of the nation’s aggregate home equity, which computes to about $8 trillion.

These numbers put this group in a position to greatly influence where the housing market will go in the next decade, according to Freddie Mac Chief Economist Sean Becketti in a blog post on Wednesday ^[1].

“Whether they decide to move from their current homes or age in place, the cumulative impact of their decisions on mortgage demand, affordable housing supplies, and the housing options available to Millennials and other aspiring homeowners will be substantial,” Becketti wrote.

Freddie Mac’s survey of nearly 4,900 homeowners ^[2] age 55 and over (a mix of men, women, Caucasian, African-American, and Hispanic, and Asian), revealed that the majority of baby boomers are satisfied with their current homes (about 64 percent) and that 90 percent believe people their age should own a home. Nearly everyone surveyed said homeownership makes sense for married people with children (96 percent), and a majority said it makes sense for people without children (85 percent).

About 63 percent of respondents said they prefer to age in place, which would compute to about 42 million homeowners spread out across the entire 55+ demographic. However, that still leaves approximately 40 percent of boomers (27 million) who said that if they had complete control, they would move at least one more time. According to Freddie Mac, 19 million of those boomers plan to buy a home and eight million plan to move in the next four years.

“These are big numbers with the potential to tighten homebuying competition in the housing market, especially for millennials and other first-time homebuyers,” Becketti wrote. “They also have the potential to generate significant new demand for mortgage credit. Whether the borrower is financing age-in-place renovations or buying a new house, even a relatively modest increase in lending to 55+ homeowners could add trillions of dollars in new originations in a relatively short time. One way or another, the baby boomers' housing decisions over the next few years will take our market to brand new places.”

 

 

Capture the Glory of the Summer of ’16 and Lock In Low Mortgage Rates

If you are among the estimated 3 million households likely to close on the purchase of a home from now through August, the summer of ’16 is looking like a golden period of low mortgage rates.
The average rate for a 30-year fixed mortgage is now 3.63%, near April’s average of 3.61%. Rates had moved up in May, anticipating that the Federal Reserve might raise short-term rates as early as June.  However, the May jobs report significantly lowered the risk of seeing higher rates for the rest of the spring and into the summer.

Rates are solidly lower than where they ended 2015 (at 4.09%) and where they were this time last year (4.12%). The difference adds almost 6% to buying power and expands the ability to qualify as a result of lowering the mortgage payment, which factors into the debt-to-income calculation.
Looking back four years (it is graduation season, after all), the summer of 2012 was slightly more advantageous in regard to rates, but that was the year that the housing recovery began. The average 30-year fixed rate has reached or stayed above 4% in every other summer since then. We think that rates are likely to stay right about where they are now (well under 4%) for the rest of the summer, but they are very likely to be higher next year. This is the summer to lock in rates.

But guess what? Rates are not monolithic. Even when looking at the same mortgage types, rates vary dramatically by lender and location. Example: The lowest current average rates being offered for 30-year fixed mortgages are for homes in Alabama, the District of Columbia, Georgia, Iowa, Louisiana, Mississippi, New Mexico, Oklahoma, South Carolina, and Tennessee.

In these states, the average 30-year fixed rates being offered by lenders are 3 to 5 basis points lower than the current U.S. average. A basis point is 0.01%.

Think that’s irrelevant? On a median-priced home financed with a 30-year fixed-rate mortgage with 20% down, a rate that’s 5 basis points lower would save $100 in interest in the mortgage’s first year and over $2,000 over the life of the loan. Not so irrelevant after all.

Even if you aren’t in these states with the lowest average, it pays to shop around!