Real Estate Roundup: The Median Down Payment in Silicon Valley Is $300,000

Here’s a look at recent news of interest to homebuyers, home sellers, and the home-curious.

Amassing a down payment is frequently cited as one of the biggest hurdles to homeownership for first-time buyers, and a recent report sheds light on how difficult that task currently is in the Bay Area’s sky-high housing market.

That’s according to ATTOM Data Solutions’ latest U.S. Residential Property Loan Origination Report, which puts the median down payment for single-family homes and condominiums in the San Jose metropolitan area at of $298,250, nearly 18 times higher than the national average and the most in the U.S. San Francisco homebuyers placed the country’s second largest down payments of $180,000. Those figures represent about 24 percent of the average sales price in both cities.

The Bay Area also leads the country for the number of co-buyers, home purchases made by multiple nonmarried parties. Co-buyers accounted for 48.3 percent of sales in San Jose and 37.9 percent in San Francisco.

“It’s not surprising that in places like Seattle, the Bay Area, and other challenging markets buyers are looking at ways to increase their purchasing power, and reduce the amount of debt they are taking on,” Unison Director of Corporate Communications Michael Micheletti told ATTOM Data Solutions. “The sharing, co-buying and co-owning of a home movement will only grow as more millennials and Gen Z enter the marketplace.”

The Federal Reserve’s decision to raise interest rates last week and the resulting impact on the U.S. economy are perhaps the two biggest factors currently affecting the U.S. real estate market, an industry trade group says.

A report from The Counselor of Real Estate identifies the top 10 factors that will influence real estate markets both in the short term and over the long term. Besides interest rates, short-term issues include the recently passed Economic Growth, Regulatory Relief, and Consumer Protection Act; demographic changes; the evolution of e-commerce businesses; and of course, the nationwide affordability crunch.

Over the long term, CRE identifies infrastructure, immigration, energy and water, disruptive technologies, and natural disasters as having the biggest potential impacts on real estate markets. The organization notes that since 2006, disasters like October’s Wine Country wildfires have caused real estate markets to experience significant losses.

While moribund golf courses represent an opportunity to build more much-needed housing, NIMBYism may prevent that trend from taking hold.

Citing data from Pellucid, a CityLab article says that the number of Americans who regularly gold dropped by about nine million between 2002 and 2016. As a result, golf courses are beginning to close, and that trend is expected to continue. An average 18-hole golf course that sits on 150 acres could accommodate up to 600 new single-family homes, and even more if townhouses and apartments are added to the mix.

But currently, shuttered golf courses in Missouri and Florida are being redeveloped for commercial purposes rather than residential. As CityLab points out, this is partially due to regulations, as many golf courses were zoned for commercial use. But transforming golf courses to housing units is also meeting resistance from residents of nearby communities, many of who are more affluent than others in the area. Earlier this year, residents of a Boston suburb voted down building a senior-living facility on a struggling golf course, while residents of a Rochester, New York suburb opted to buy a golf course and turn it into a park.

Mortgage rates climbed to the second highest level point in 2018 last week after the Fed raised interest rates by 25 basis points.

The latest numbers from Freddie Mac put 30-year, fixed-rate mortgages at 4.62 percent for the week ended June 14, up on both a weekly and yearly basis. Fifteen-year, fixed-rate mortgages rose to 4.07 percent.

In a statement accompanying the report, Freddie Mac Chief Economist Sam Khater said that rising mortgage rates will not have as profound of an effect on consumer budgets as in past cycles because far fewer Americans have adjustable-rate mortgages than they did 10 to 15 years ago. Still, he stressed that stronger wage growth would help homebuyers better keep up with both rising prices and mortgage rates.

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Millennials Are Now the Most Active Home Remodelers

  • Millennials have completed more home-improvement projects over the past 12 months than any other generation.
  • Despite increased home-renovation activity by millennials, they still spend the least on projects, while baby boomers spend the most.
  • Tight inventory conditions and rising mortgage rates should cause both remodeling activity and spend to grow in the coming years.

Young couple studying remodeling plansHaving either purchased lower-end homes in need of renovations or unable to move up due to tight housing inventory conditions, millennials are leading the charge when it comes to home remodeling, though they are not the biggest spenders.

Those are two of the key findings from HomeAdvisor’s 2018 TrueCost Report, which says that millennials — defined as those between the ages of 24 and 38 — have completed more home-renovation jobs than any other generation over the past year. Millennnials tackled 18 percent more remodeling jobs than Gen Xers and 42 percent more than baby boomers, a shift in trends seen in previous years’ surveys.

“Most millennials have had to compromise on the size and condition of their starter homes — with many purchasing older homes in need of repair just to be able to afford homeownership,” writes HomeAdvisor Chief Economist Brad Hunter, the study’s author. “Many of the millennials who did buy a home in the last few years are seeking to upgrade. But a lack of housing inventory, coupled with inflated home prices and rising mortgage rates, has them renovating their existing homes instead of selling and moving.”

In another reversal of prior survey results, HomeAdvisor found that bathroom remodels are now common than kitchen renovations among homeowners of all ages. Here again, millennials lead the trend and are twice as likely to complete a bathroom remodel than baby boomers.

Even so, baby boomers have spent more than any other generation over the past 12 months, an average of $7,524, compared with the national average of $6,649. By contrast, millennials have been more cost-conscious about renovation budgets than all other generations, spending an average of $5,693.

HomeAdvisor expects that the nationwide housing inventory shortage, which is particularly severe in California and the Bay Area, will lead more homeowners to remodel rather than sell and attempt to purchase another property. More than 80 percent of those surveyed have no plans to list their homes over the next year, and half of them are considering upgrading their current residences. Homeowners of all generations say that they plan to spend as much or more on improvements in the coming year as they did in the past 12 months, led by millennials at 82 percent.

Finally, the anticipation of rising mortgage rates will likely cause more homeowners to stay put and improve their current homes than buy another one over the next few years, Hunter predicts. Yesterday, the Federal Reserve raised interest rates by one-quarter of a point, and as the Los Angeles Times reports, two more increases are expected for this year.

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San Francisco Has the Nation’s Fewest Delinquent Mortgage Holders

  • The U.S. mortgage-delinquency rate dipped to 4.3 percent in March, the lowest since March 2007.
  • In the San Francisco metropolitan area, 1.5 percent of homeowners are delinquent on their mortgages, the fewest of any large U.S. housing market.
  • Mortgage delinquencies rose in the Santa Rosa and Napa metro areas from one year earlier, likely a result of October’s wildfires.

Contemporary homes in San FranciscoA thriving economy and rising home equity have helped pushed mortgage delinquencies to the lowest point since before the Great Recession, with San Francisco claiming the best late-payment rate of any large U.S. city.

That’s according to CoreLogic’s latest Loan Performance Insights report, which says that 4.3 percent of Americans with a mortgage were delinquent on their payments by more than 30 days as of March, the lowest number in 11 years. Mortgage delinquencies decreased in 47 states from one year earlier — including in California, where they dropped to 2.5 percent.

In a statement accompanying the report, CoreLogic Chief Economist Frank Nothaft pointed to the U.S. unemployment rate, which fell to an 18-year low of 3.8 percent in May, as helping most Americans avoid mortgage delinquency. He also said that rising home equity plays a factor in the trend, with the average mortgage holder gaining $16,300 in equity between March 2017 and March 2018.

Of the 10 largest core-based statistical areas in the country, San Francisco — which includes Marin, San Mateo, Alameda, and Contra Costa counties — boasts the nation’s lowest mortgage-delinquency rate, at 1.5 percent. Mortgage delinquencies are even more scarce in San Jose-Sunnyvale-Santa Clara, where just 1.1 percent of homeowners are more than 30 days late on their payments. The number of delinquent mortgages declined year over year in both areas.

By contrast, mortgage delinquencies rose from March 2017 in the Santa Rosa and Napa metro areas, to a respective 2.1 percent and 2.2 percent. This is likely due to the devastating October wildfires, with CoreLogic CEO and President Frank Martell referencing last year’s natural disasters as a factors affecting current mortgage-default rates.

California and the Bay Area serve as prime examples of the two trends that Nothaft referenced as helping fewer Americans to be tardy on their mortgage payments. The state’s unemployment rate fell to a record-low 4.2 percent in April, with jobless claims in San Francisco and San Mateo counties dropping to 2.1 percent. And according to a separate recently released CoreLogic report, Golden State homeowners gained an average of $51,000 in equity between the first quarter of 2017 and the first quarter of 2018, the most in the country.

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Residents Are Overwhelmingly Happy With Their Homeowner Associations, Survey Finds

  • More than eight in 10 residents who pay homeowner association dues describe themselves as satisfied with their living situations.
  • Ninety percent of those who live in communities governed by an HOA believe that the guidelines protect or at least do not detract from their property’s value.
  • Residents say that living in a clean and attractive community is the top benefit of paying HOA dues.

Monthly homeowner association dues can be quite an expensive proposition at luxury buildings in cities like San Francisco, but most people who pay them are pleased with the services they receive.

That’s according to survey results from the Community Associations Institute, which found that 85 percent of Americans who live in buildings governed by HOAs say that they are satisfied in their communities. Sixty-three percent of residents rate their experience with their HOA as positive, while 22 percent are neutral on the subject.

Similarly, 81 percent of respondents said that they were on good terms with members of their HOA, and an identical number cited positive experiences when making personal contact with community managers. Eighty-four percent of residents believe that their HOAs absolutely or mostly have residents’ best interests in mind when making decisions.

An even larger number of those who live in HOA-governed buildings — 90 percent — believe that the rules enhance their property’s value, or at least do not negatively affect it. Just 4 percent of those surveyed believe that HOA guidelines harm their units’ value.

Because most residents who pay HOA dues perceive them as an investment in their long-term financial future, they are adamant that all residents chip in for the good of the community. Similar to past years’ surveys, nearly three-quarters say that they insist that their neighbors pay their dues with sufficient notice (including involving attorneys if necessary), compared with just 10 percent who would cut services or amenities for everyone.

So what do Americans like most about living in buildings governed by HOAs? Residing in a clean, attractive community is the top reason, cited by one-fifth of those surveyed, while 18 percent point to safety and not having to perform maintenance chores themselves.

If you are thinking about shopping for a condominium that charges HOA dues, check out Pacific Union’s primer on the subject, “Demystifying Homeowner Associations.”

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Homeownership Is the Main Source of Wealth for Americans

  • Americans’ primary residences account for about 25 percent of their overall wealth, more than any other asset.
  • Homeownership remains a cornerstone of the American Dream and also helps build strong communities and drive the U.S. economy.
  • Nationwide, the homeownership rate remains below its long-term average of 66.3 percent.

June is National Homeownership Month, and with it comes several reminders as to why owning a home is so important for Americans.

Citing research from the Federal Reserve, the National Association of Home Builders reports that primary residences accounted for about one-quarter of Americans’ overall wealth in 2016, more than any other financial asset. Besides creating wealth, owning a home allows for amassing equity, with Americans having a record-high $14.4 trillion in equity as of the last quarter of 2017.

“Homeownership is a primary source of net worth for many Americans, and is an important step in accumulating personal financial assets over the long term,” NAHB Chairman Randy Noel said.

But financial security is not the only benefit of owning a home. According to a blog post from Freddie Mac, homeownership remains a key part of realizing the American Dream. That sentiment dovetails with a report published last fall by home-remodeling website Hearth, which found that seven in 10 Americans said that owning a home was an important part of fulfilling their dreams.

“Homeownership changes lives and enhances futures, and many Americans see it as one of their greatest hopes,” National Association of Realtors President Elizabeth Mendenhall said in a statement released last Friday.

Freddie Mac says that homeownership also strengthens community bonds, pointing to benefits such as higher rates of volunteerism, safer neighborhoods, and better health. And the housing market is a major driver of the U.S. economy, accounting for 12.3 percent of the country’s gross domestic product in 2017.

Still, for all of the benefits of homeownership, current rates remain below the long-term average, a result of tight affordability conditions. The NAHB says that 64.2 percent of Americans own homes, compared with the 25-year average of 66.3 percent.

And unless builders ramp up construction activity — which Noel blames in part on the rising cost of lumber — America’s housing affordability crunch is unlikely to improve. According to Black Knight Financial Services’ latest Mortgage Monitor report, if U.S. home price appreciation continues at its current rate and interest rates increase by one-half of a percentage point per year, affordability will drop to an all-time low by 2023.

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As Summer Nears, Homeowners Have Outdoor Parties in Mind

  • Two-thirds of homeowners who are improving their outdoor spaces expect to spend more time outside, and just more than half say that they will entertain guests more often.
  • As in 2017, fire pits are projected to be the most popular outdoor design amenity this year, cited by 66 percent of landscaping professionals.
  • Of all outdoor home-improvement projects, adding native and drought-tolerant plants is expected to see the most demand in 2018.

With the official beginning of summer just a couple of weeks away, the high season for backyard barbecues and pool parties will soon arrive, and a significant number of American homeowners are upgrading their outdoor spaces with entertaining guests in mind.

An April survey from Houzz found that 51 percent of homeowners who are currently improving some aspect of their outdoor spaces or have recently done so will spend more time throwing parties than they did before the renovations. An even greater number of homeowners — 67 percent — say that they will spend more time outdoors after the improvements are complete.

So what kinds of outdoor landscaping and design projects are homeowners keen on in 2018? A separate survey from the American Society of Landscape Architects found that for the second straight year, fire pits and fireplaces are projected to be the most popular outdoor design element, cited by 66 percent of landscaping professionals. Fire pits also surfaced in Houzz’s poll, in which nearly 40 percent of homeowners said that they had or were planning to invest in that amenity.

Seating, nearly imperative for a good outdoor party, also ranked high in both surveys. Houzz found that 43 percent of homeowners were upgrading their outdoor spaces with plenty of lounge furniture, while about 60 percent of professionals surveyed by ASLA pointed to seating and dining areas and outdoor furniture as amenities they expect their clients to want.

And of course, what’s a backyard barbecue without a place to cook outside? Nearly 60 percent of ASLA professionals think that homeowners will install outdoor kitchens, and exactly 50 percent say that grills will be in high demand.

While entertaining guests is a primary motivator for improving a home’s outdoor space, basic aesthetics and curb appeal still best all other concerns. The top three projects expected to see the highest demand this year are adding native and drought-tolerant plants and low-maintenance landscapes, cited by roughly eight in 10 landscaping professionals.

Finally, don’t forget man’s best friend: Nearly 70 percent of ASLA professionals project that their clients will request an outdoor recreation area for their dogs, making it the most popular recreation-related improvement.

(Photo: iStock/KatarzynaBialasiewicz)

Shared with permission from the Pacific Union Blog