- Many factors have increased the number of renter households qualified to purchase a home in 2012 versus 2000 and 2005: 1) incomes have increased, 2) population has grown, 3) mortgage rates are lower, and 4) prices have fallen since 2005.
- Additionally, while home prices rose from 2011 to 2012, lower mortgage rates have more than offset the gains, so the income needed to purchase the median priced home has actually gone down from 2011 to 2012 in spite of rising home prices.
- The tables below show the data underlying the change in required income. Qualifying income required to purchase a median priced home has fallen from $50,400 in 2005 and $40,300 in 2000 to $33,100 in 2011 and $31,700 in 2012 [1].
- Finally, based on all of these factors, we see that while 33 percent of renters qualified to buy the median priced home in 2000 and 24 percent of renters qualified to buy the median priced home in 2005, 47 percent of renters would qualify in 2011 and 40 percent would qualify in 2012 [2]. Translating these numbers into households, roughly 8 million renters qualified to purchase the median priced home in 2005 while in 2012, 20 million renter households qualify.
- These calculations assume that potential buyers meet credit qualifications and have sufficient cash on hand to close a transaction. Lending standards, credit quality, and access to funds will affect the number of households who will ultimately be able to buy a home.
[1] All values are nominal, not real values.
[2] This calculation assumes that income distribution in 2012 is the same as it was in 2011.
Approximately three to four percent of REALTORS® report a commercial rental every month. On an annual basis, this would be in the neighborhood of 175,000 rental transactions per year. In addition, approximately three percent of REALTORS® report a commercial sale.
According to the Commercial Real Estate Quarterly Market Survey, rental volumes are up by three percent on a quarter-over-quarter basis. Rental rates are down by two percent, although the level of downward pressure has been decreasing. For sales, volume is up by 11 percent, with prices down 3%.
The U.S. home ownership rate stands at a 15-year low with the latest figures showing 65.6 percent of Americans living in owner-occupied homes. At peak in 2004 the ownership rate was a hair shy of 70 percent. Over the next two years it may fall further, possibly to 64 percent before stabilizing. But the falling homeownership rate will not mean fewer home sales. The dynamics is such that both the rental and ownership households will rise, though the proportion will be such that the home ownership rate will fall.
As part of the health care legislation, a new 3.8 percent tax will be imposed on some people starting in 2013. Contrary to rumors among some real estate practitioners, this is not a tax on the sale of a home. Neither a home-buyer nor home-seller will have to fork over $3,800 to the federal government on the sale of a $100,000 home.
This tax, however, will impact some landlords and some homeowners who have significant housing equity. Rental incomes will be subjected to this 3.8 percent tax on landlords who earn more than $200,000 a year. For example, a corporate lawyer who has a high salary but who also owns a rental property will likely be subject to this tax. But as with most taxes, those who have to fork over the money to the federal government and those who actually suffer the burden of the tax will not be the same. The right question to ask is: how much of this tax on rental income will get shifted to tenants as a rent hike?
Farm Land Prices Surge
Farm prices are going through the roof, at least in Colorado, Kansas, Missouri, Nebraska, Oklahoma, and Wyoming – the area monitored by the Kansas City Federal Reserve. Both irrigated and non-irrigated land prices have essentially tripled in the past 10 years, with the most recent appreciation of a strong 27 percent in the past year to the second quarter. Many foreign investors are said to be buying farm land even without an on-site visit on the assumption that crop yields will easily cover any borrowing interest cost. High food prices and livestock prices are helping, though only if farmland has not been impacted by a drought.
Continue reading »