According to the Brookings Institution, student debt is the only kind of debt that continued to grow after the recession. There are currently $1.4 trillion in outstanding student loans. National Association of Realtors estimates that educational borrowing could delay home ownership by 7 years. The Brookings study included some scary findings on race and wealth. Black college graduates have a median net worth of $23,400, vs $180,500 for their white counterparts. Black holders of graduate degrees have a median net worth of $84,000, versus $293,100 for their white counterparts.
-$1 trillion vs +$671 billion
Slightly old news, but this April 2017 report by the Federal Reserve Bank of New York puts student loans in a bigger picture context. The current level of total household debt ($12.6 trillion) is close to what it was during the previous peak in 2008. By whereas housing related debt has declined by $1 trillion, educational debt has increased by $671 billion. Recent graduates with student loans leave school with an average balance of $34,000, up 70% over the last decade. There goes saving up for home ownership.
$10,370 vs $4,320
Apartment List surveyed 11,000 millennials and found that 80% would like to own a home at some point. College grads with no student debt have a huge advantage, with an average of $10,370 in savings. Student loan borrowers have less than half in their bank accounts.
I’m tired of Seattle’s dark winter days but it could be worse! NPR says Moscow only had 6 minutes of sun light during the whole month of December, 2017.
2.4 cents per mile
KIRO 7 reports that Washington State is starting a pay-per-mile gas tax pilot. Gas tax revenues are projected to drop 45% by 2035 because cars are getting better gas mileage. The 2.4 cents per mile rate is based on what a 20.5 MPG car pays under the current 49.4 center per gallon gas tax.
According to Crosscut, only 44% of Seattle Section 8 voucher recipients were able to find housing in 2017. Section 8 covers the difference between fair market rent and what recipients are able to pay (up to 30% of their income). But Seattle recipients only have 180 days to find a willing landlord.
The Puget Sound Regional Council projects that the number of workers in the Puget Sound area will increase by 40% between now and 2040. The number of residents will hit 5 million. Sooo many people. How will we all fit? How will we get around? The state says $40 billion is needed to meet transportation and infrastructure needs.
According to Seattle Times, that’s the percentage of brand new South Lake Union apartment units that are empty. In the downtown core, two-thirds of new apartments are vacant! Compared to the last quarter, rents in December fell more than 6% in SLU and downtown, as well as other popular areas like Belltown, Ballard and even Redmond and Sammamish/Issaquah. Rents may fall further in 2018 as 24,500 apartments are under construction across King and Snohomish counties. Seattle is getting more apartments this decade than the last 50 years combined, even as construction costs have risen 35% over the past 5 years.
Wall Street Journal says that’s the number of vacant apartment units in metro Denver, up from 5,500 three years ago. 12,000 apartments have been built since 2015, and 22,000 more are on the way. Almost all are luxury units. Meanwhile, there’s hardly any availability when it comes to affordable units below median rent. So Denver has partnered with local employers and non-profits to create a subsidy program that houses lower income residents in market rate apartments.
54% vs 64%
National Association of Realtors is touting ATTOM Data’s finding that buying is cheaper than renting in 54% of 447 counties it analyzed. While this is true, it doesn’t tell the real story: 64% of the US population live in areas where it is more affordable to rent. In particular, renting is cheaper in 76% of the counties with populations of a million or more.
Seattle Office Space News reports that there are 614,000 immigrant residents in the Seattle area. They paid $6.4 billion in taxes in 2014.
HousingWire reports that 80+% of homeowners nationwide now have tappable equity (the amount they can borrow against while remaining under 80% loan to value). The total available equity is $5.5 trillion, versus $3 trillion back in 2012. But due to rising interest rates, refinancing activity dropped 14% between Q3 2016 and Q3 2014. The math favors home equity lines of credit for those with high balances and don’t plan to capitalize on a large amount of equity.
Pyatt Broadmark‘s real estate lending funds offer short term loans for acquiring, renovating and building properties in the Pacific Northwest. The annualized return for its Fund I is an impressive 11.44% since its 2010 inception. But after its 2013 high of 12.35%, returns have declined year after year, to 10.5% in 2017. I was interested to see that its Fund II for loans in the Mountain West held up much better, with a 11.54% return in 2017.
The National Association of Realtors reports that investors of single family rentals have much better luck finding bargains in cold weather. In Seattle, where the summer to winter temperature spread is 24%, the price savings is 24.7%. In San Francisco, with a 12 degree temperature spread, the cost differential is 19.3%.
30 basis points
According to LendingTree, the best 30-year-fixed loan offers for borrowers with the best profiles had an average APR of 3.80%. But the average for all borrowers? 4.42%. Those with 760+ credit scores were quoted 4.26%, but those with 680-719 credit scores got 4.56%. The 30 basis point spread is the largest it’s been since April, 2016.
2.2K to $50.2K
Houzz says that’s the cost of renovating a large (200+ SF) kitchen in Seattle. In Miami, the same project would cost as little as $17K! The top priority for 63% of kitchen remodelers is more storage.
That’s the return on investment for owning an AirBnB… in South Bend, Indiana. iPropertyManagement compiled a list of top 100 vacation rental locations and Seattle is not on the list. Their ranking formula was based on median rental prices, historical occupancy rates, median sale prices and local ownership costs, such as property taxes and utilities. Seattle is at a huge disadvantage when it comes to the last 2 criteria.
Seattle is also not on Redfin’s list of top 25 home buying destinations that have it all: good schools, access to public transit, low crime AND affordability. Chicago, according to Redfin, is the place to be, with more than a dozen spots on the list. According to Redfin’s Illinois agents, high local taxes – about 2% of home values – are one reason why their prices are so low. Will Seattle’s house prices fall as our taxes rise?
The Top 5%
Realtor.com reports that nationwide, luxury housing (defined as homes priced in the top 5 percentile) took longer to sell and appreciated less over the past year, compared to the rest of the market (5.1% versus 6.9%). In particular, CoreLogic noted that low-priced homes (75% of median or below) appreciated by 9.7 percent. Javier Vivas, Realtor.com’s director of economic research, pointed out that based on the age of luxury inventory, it seems high-priced housing is being constructed at a pace that exceeds demand. Definitely not the case at the other end of the spectrum.
Believe it or not, Curbed found SIX housing options that those earning Seattle’s now $14/hour minimum wage can afford without being rent-burdened. Some, as you’d expect, are in less-than-central locations such as Kent and Everett, but an International District studio was available for just $705/month! As a point of reference, $728 would be the monthly payment for a $153,900 mortgage at today’s interest rate, not counting mortgage insurance, property taxes, HOA fees, insurance, repairs & maintenance, utilities…
No, not the month. ATTOM Data says that in 2017, there was a 123% increase in home purchases by buyers named April in Washington State. Nationwide, buyers named Dylan, Chelsea, Austin, Alexandra and Taylor snapped up homes, while those named Gerald, Kristin, Stanley, Kurt and Jaime held back. ATTOM thinks this indicates increased millennial home buying as the first group of names spiked in popularity for babies born between 1992 and 1995, and the second group of names were most popular before 1976.
According to Ellie Mae, that’s the average FICO score for closed loans with millennial borrowers in November, 2017. Millennial credit scores for FHA refinance loans were much lower: 669, versus 679 a year ago.
Speaking of millennials, Seattle Times reports that 23-year-old Cary Kuo turned his $4,500 initial investment in cryptocurrency into a 10% down payment for his new house in Tukwila. Guild Mortgage confirmed with Fannie Mae that bitcoin is an acceptable asset for securing a loan. However, neither the seller nor any other party actually received cryptocurrency as part of the transaction. Kuo converted his bitcoin cash to US dollars to complete the sale. I was interested to read that in spite of his profitable investments, Kuo plans to cash out regularly and use the money to buy real estate.
Perhaps Kuo read that over the years between 1870 and 2015, housing was the best investment in the world, providing the steadiest inflation-adjusted return on investment.
Unlike Kuo, 61% of first time home buyers made 6% or lower down payments on their purchases. According to the Federal Reserve Board, average savings among non-homeowners was only $5,200 in 2016. Fannie Mae does allow 100% of a purchaser’s down payment to come from relatives and/or partners. Freddie Mac allows gifts after the borrower puts in 3%. FHA allows those with 620+ credit scores to receive funds from friends, relatives, employers, non-profits and government agencies.
According to the Bureau of Labor Statistics, that’s the number of residential construction jobs added to the US economy in 2017. National Association of Realtors chief economist Lawrence Yun says we still don’t have nearly enough construction labor to meet housing demand. He suggests issuing temporary work visas to make up for inadequate availability of domestic construction workers. (via HousingWire)
In the $1M+ market, though, S&P predicts that the new law could reduce demand: “our initial analysis suggests that the lost tax deductions may affect homeowners’ free cash flow by as much as 0.5%-1% of the property value on an annual basis, depending upon local tax rates. Consequently, we expect that overall long-term home price appreciation for these properties could be dampened by 15 percentage points or more.”
OMG – is it 2018? Happy New Year!
That’s how many US zip codes Amazon says it delivered Instant Pots to in 2017. (Including mine! I’ve found it to be $99 well spent.) Amazon now has 100 million products available for 2-day delivery, and it shipped 5 billion items through Amazon Prime last year. According to Fortune, Amazon had 90 million US-based Prime subscribers as of October 2017. If you divide 5 billion items by 90 million, it seems each subscriber bought more than an item each week from Amazon? I can believe that.
In a survey of 300 home building executives by John Burns Consulting, 40% complained about the rising cost of land, labor and materials. In the Northwest, delays were cited as another concern, including long waits for building permits and inspections. In particular, the survey pointed out that Seattle is understaffed to handle the workflow from escalating new home demand.
9.7% vs 5.7%
CoreLogic has an analysis of year-over-year national home price growth in four price tiers. The lowest tier (75% of median or below) increased 9.7 percent, the low middle (75-100% of median) increased 8.6%, the high middle (100-125% of median) increased 7.1%, and the highest tier increased by 5.7%. Edward Pinto, co-director of American Enterprise Institute’s Center on Housing Markets and Finance, predicts that the cost of lower-priced homes will increase even faster this year, by as much as 11%. He sees first-time buyers taking on increasing leverage to keep up with price gains.
17mm (or 2/3 inch)
That’s how much rain fell in Seattle between 2014 and 2017, the wettest 4-year-period in over 120 years. Seattle PI reports that our 3-month outlook is for colder and wetter weather than usual.
Fannie Mae and Freddie Mac are giving lenders the option to use automated appraisal tools, rather than conduct an in-person professional appraisal, on mortgages with loan-to-value ratios of 80% or below. CoreLogic compared automated versus in-person appraisal results for 190,000 homes appraised between July 2016 and June 2017. Its study showed that most appraisers valued homes at or slightly above contract prices (31.6% and 58.6%, respectively). Less than 10% of appraisals came in under purchase prices. In comparison, 54.6% of automated appraisals valued homes below purchase prices, leading to a higher loan-to-value ratio than buyers initially expected.
Zillow estimates that the total value of all US homes is 1.5x our national GDP. Home values grew by $1.95 trillion over the past year, or 2x Apple’s market cap (which grew by $250.5 billion, or 40%, over the past year.) Renters paid their landlords $485.6 billion.
The $10K cap on state and local sales/property/income tax deductions is a big deal! Washington Post reports that this Tuesday alone, Fairfax County, VA collected $16 million in 2018 property tax pre-payments and Montgomery County, MD collected $8 mllion on Wednesday. The article drew 3,463 comments in less than 24 hours. Governments in many east coast jurisdictions are convening emergency sessions to assess 2018 property taxes in advance, as the IRS says only taxes that have already been assessed can be deducted on 2017 tax returns. In King County, Assessor John Wilson told Seattle Times that property tax pre-payment is not an option, as 2018 tax bills won’t be ready until next February.
According to a Zillow survey conducted earlier this year, only 51% of respondents felt that they’re subject to unfair property taxes. The other 49% might not be paying close enough attention to their tax bills. In King County, property tax assessments are supposed to reflect fair market value. Over the past few weeks, both 2616 Harvard Ave E and 544 N 67th Street were sold for exactly $800K, which would seem to indicate that they have equivalent fair market value? But their assessments are $1.038M and $504K, respectively. The Assessor’s office says it is your responsibility to bring inaccurate assessments to their attention.
In Fannie Mae’s Q4 2017 Mortgage Lender Sentiment Survey, 46% of 196 participating mortgage executives thought it’s easy to get a home loan, up from 13% in Q4, 2014. Does this indicate lending standards have become less stringent? Or have less qualified borrowers been priced out of the past few year’s competitive housing market?
CoreLogic picked out 16 high risk housing markets and Seattle was not one of them. The selection was made by comparing house price appreciation against growth in income and rental rates (“if home prices deviate too far, then it’s due for a correction sooner or later”). CoreLogic also looks for prevalence of house flipping and mortgage fraud.
According to TransUnion’s data, that’s the total number of mortgage accounts, down from 60.1 million in 2010. Back then, 7.21% were 60+ days past due. Nowadays, it’s 1.91%. TransUnion expects delinquency to further decline to 1.65% by the end of 2018. TransUnion also predicts a HELOC (home equity line of credit) resurgence with 10 million loans between 2018-2022, vs 4.8 million loans between 2012-2016.
746 (749 in Washington State)
CoreLogic’s research shows that the average home buyer’s credit score has increased by 7 points between Q3 2016 and Q3 2017. The share of buyers with sub-640 credit scores was 2%, compared with 25% in 2001. The average debt-to-income (DTI) ratio was 36%. The average loan-to-value (LTV) ratio was 84.9%. Investors took out 4.4% of the loans and condo/coop buyers 11.5%.
Of all the houses that came on the market in 2017, 41% were rated by Redfin’s algorithm as “hot homes”, up from 27.6% in 2014. (Apparently “hot home” means 70%+ likelihood of finding a buyer within two weeks.) In Seattle, where 19 of of Redfin’s 25 most competitive neighborhoods are located, 67% of this year’s listings were hot homes.
As you may have heard, the new tax law passed.
If You’re a Homeowner Who is Staying Put
You can still deduct interest on up to $1 million of mortgage debt. You can also refinance your loan and retain this deduction limit, as long as the new loan amount is lower than your current balance.
You can still deduct home equity loan interest if proceeds are used to substantially improve the property. Otherwise, the deduction is repealed through the end of 2025.
There’s now a $10K cap on sales and property taxes. (Seattle Times reports that no, you can’t prepay your property taxes.)
Casualty losses are only deductible if associated with a presidentially-declared disaster.
Standard deductions have increased to $12K/$24K (for singles/joint filing couples), so many may longer be able to claim the above deductions by itemizing.
If You’re Thinking About Selling Your House
You can still exclude $250K/$500K (for singles/joint filing couples) of home sale profits from taxes if it’s been your primary residence for 2 out of the past 5 years. (Previous versions of the tax bill had proposed lengthening the residency requirement to 5 out of 8 years. This would have been extremely costly to new-ish homeowners needing to relocate.)
1031 exchanges remain in place if you’re an investor.
If you’ll be moving out of town after your sale, your relocation expenses are no longer tax deductible.
If You’re Thinking About Buying A House
You can only deduct interest on up on $750K in mortgage debt, down from $1 million previously. This limit will not be indexed for inflation going forward.
You can still deduct interest on second homes, subject to the $750K limit.
If you’re moving to Seattle from elsewhere for a job, your relocation expenses are no longer tax deductible.
What Will Be the Impact?
The Wall Street Journal says 23 million fewer households will be incentivized to buy houses. It cites Zillow’s estimate that only 14% of homeowners will now be able to take advantage of mortgage interest deduction (versus 44% previously), as well as Moody’s projection that US home prices will drop by 4% nationally and as much as 10% in pricier areas.
Curbed says this is because because mortgage interest and property tax deductions are baked into home prices. Reducing these benefits will inherently lower the values of affected homes.
The National Association of Realtors has an even grimmer view: only 5-8% of taxpayers will now be able to claim mortgage interest and property tax deductions. “There will be no tax differential between renting and owning for more than 90% of taxpayers”.
Update 12/22: Tim at Seattle Bubble does the math for two hypothetical couples, one near the cutoff point of the new standard deduction and the other whose home loan is just over the $750K mortgage interest deduction limit. He concludes that while those purchasing homes costing less than $500K or over $1.25M may see some tax impact, it’s doubtful that potential buyers will walk away in droves over a couple thousand dollars of lost tax savings.
I’m not sure I agree, because in addition to these lost savings, interest rates and property taxes are both rising. Faced with this triple whammy, the same $500K or $1.25M house will cost the same buyer much more next year, forcing many to reduce their home shopping price range. I think price growth will slow, but by how much I don’t know.