What could be stalling people on buying homes? Inventory is lowand when there are multiple offers skyrocketing prices, your buyers might be intimidated!
According to Real Estate Business Intelligence, there were 7,928 homes under contract in January 2018 in the Washington, DC metropolitan area. This is only a 0.5% decrease over January 2017 when interest rates were above 4%. Listed below are eight reasons why people may be hesitating to make their first home purchase or to move up from a starter home.
1. Poor Wage Growth/Weak Growth in Higher Value Added Jobs
According to George Mason University’s Center for Regional Analysis, 66,000 net jobs were added in the DC area region from 2008-2014. However, most of these jobs were in the retail and hospitality/leisure sectors, which are typically on the lower end of the wage scale. In addition, while the Federal Government is a significant employer, 21,800 Federal jobs have been lost in the DC metro area since 2010, representing a 5.6% decrease. The Federal payroll will continue to decline as the workforce shrinks and older workers retire and are replaced by younger workers. Last, in both the public and private sectors, wages have remained stagnant over the last ten years while the cost of living continues to increase.
2. Degraded Mobility
With the Federal Government decreasing their presence in the area and job growth primarily occurring in lower paying sectors, there is less of an incentive for people to move to the DC metro area. People will not move into the region, one of the priciest in the country, if they do not have the confidence that their income is going to increase.
3. Lower Marriage Rates
Driven by a sluggish economic recovery and shifting cultural support for marriage, the marriage rate in the U.S. is at an all time low. The decrease in traditional marriages has resulted in fewer households with two incomes, which is very often needed to afford a home in the DC area.
4. Limited Access to Credit
Access to credit is not as liberal as it was ten years ago. Lending to potential buyers with lower credit scores has fallen dramatically in recent years. With the current low interest rates, many homeowners are opting to re-finance rather than purchase a new home.
5. Student Loan Burdens
According to the Urban Institute, a Washington-based think tank, the share of college graduates with more than $40,000 in student loans grew by almost ten times in just eight years. In 2004, just 2% of student loan borrower’s with bachelor’s degrees were holding $40,000 or more in student loans. By 2012, that share jumped to 18%. With a greater debt load, many millennials do not have the funds for a down payment or for a monthly mortgage payment.
6. Changing Generational Values and Preferences
Due to a higher debt burden and the tendency to marry and have children later in life, many millennials prefer to rent. In addition, many millennials just don’t want the worry/expense of keeping up a home. Renting is deemed easier. According to the Demand Institute, only about one in four millennials own a home, down from about one in three in the mid-70’s and early 80’s.
7. Uncertainty in Global Markets
The recession has not only impacted U.S. citizens. The world’s economic climate continues to remain uncertain. International companies are sending fewer employees to work in the U.S., thus reducing the demand to purchase a home.
8. Slower Immigration
While immigrant workers are a growing segment of the U.S. labor force, this growth has slowed in the DC metro area due to Federal sequestration, high home prices, and overall job opportunities. According to the Bureau of Labor Statistics, in 2014, the DC metro area ranked 15th in job growth, ranking behind others cities such as Phoenix, Minneapolis, and Detroit.
On the Upside
While some people may be wary about purchasing a new home, for those that are in the market to do so, now is an ideal time to buy. As stated, interest rates are at an historical low and housing inventory is now greater than demand, so it is a buyer’s market. Should you have any questions about whether you should buy, feel free to contact the Eric Stewart Group and we can help you determine the path that is best for you. In addition, for useful tips on buying a home, download our free Savvy Buyer Guide.
For more information on this topic and other local economic updates affecting the real estate market, listen to The Eric Stewart Show every Sunday from 8am – 9am on WMAL AM 630 or 105.9 FM. If you miss a show, don’t fret! You can access the archived shows here. You can also find us on yoru favorite Podcast app - including his National News show - Real Estate Now on Google Play.
