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State of the Housing Market in 2016: Part Two

Categories: Home Trends, Buy A Home

In Part One of this series, we examined the overall market shifts from sales volumes nationally to the demand for housing in North Carolina. Here we explore two more trends: the Baby Boomers taking over and interest rate implications.

Chapel Hill Realtor Kim Dawson, president of the North Carolina Association of Realtors, says North Carolina saw a lot of first-time homebuyers in 2015, along with empty-nesters looking to downsize and retirees moving in from the north, and she expects all of those groups to again comprise most of her buying clients this year.

Forecast: Graying Market

But nationally, homebuyers are becoming older. At the end of 2015, the share of first-time homebuyers was at an all-time low, having declined each of the past six years. After 5 consecutive years of job growth, Lawrence Yun, chief economist with the National Association of Realtors, thinks that trend will start to change this year, if only modestly.

It isn’t for a lack of desire among Millennials. In a December National Association of Realtors survey, 94% of renters age 34 and younger said they aspire to home ownership at some point in the future.

Millennials are increasingly attracting the focus of homebuilders. While addressing the National Association of Homebuilders’ annual conference in Las Vegas earlier this year, Dan DiClerico of Consumer Reports said Millennials have become the nation’s top home-buying demographic, outnumbering Baby Boomers 36 to 34%.

Contrary to stereotype, many are now earning high incomes and demanding larger homes than the industry initially expected. Most prefer city life but often must settle for the suburbs if that’s not possible.

Still, many builders continue to believe Boomers will drive most of their business.

“They are putting more money into their homes and building fairly substantial houses,” Pennsylvania builder Tim McCarthy told the Associated Press. “They are substantially better off than the rest of America. They are going to dominate the housing market.”

Forecast: Mortgage Origination Challenges

Nationally, married couples with dual incomes are buying the most homes, making their down payments and increasingly, paying for their entire homes, with cash proceeds from selling their previous homes, something they had long wanted to do but couldn’t until home values increased, says Adam DeSanctis, a National Association of Realtors spokesman.

Because of so many cash sales last year, purchase mortgage originations are forecast to increase 13% this year after rising 8% last year, according to the Mortgage Bankers Association. But because interest rates are expected to keep rising, refinancing volume is slated to drop 32%, after growing by 32% last year.

Combining both types of mortgages, total originations are forecast to decline by about $100 billion this year.

Michael Jablonski, executive vice president and director of mortgage lending at First Bank, says he relishes the challenge.

Despite the declining mortgage market, Jablonski says he is confident First Bank will accomplish its objective to grow its mortgage business. It’s becoming increasingly important with the decline in two other traditionally reliable revenue sources, transaction fees from credit and debit cards as gas prices have plummeted, and minimum deposit fees because people are saving more.

“We fully expect our volume at First Bank will improve as we continue to implement our (mortgage lending) strategy,” Jablonski says. “We fully expect to take market share from our competitors.”

Jablonski says First Bank will do that by offering competitive interest rates and emphasizing its wide array of products and services, in contrast to mortgage brokers who form a much more limited relationship with their clients.

“I love to talk about mortgages,” Jablonski says, “and the best way to talk about mortgages is through the delivery channel of a full-service bank, and through a community bank that is well-capitalized, strong and with a good culture that we want to employ in the community so that we can be successful.”

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