‘Echo boomers’ to drive housing recovery
Q. What do you think will drive the recovery of the housing market in the foreseeable and longer range future?
A. There are numerous factors that still can affect the housing market in the near future and beyond. One of them is the age demographic. I found an interesting report by the Joint Center for Housing Studies of Harvard University.
They explained that starting this year 2012 and continuing over the next 20 years, the ‘echo boomers’ (born in the late 1970s and early 1980s) will drive the housing market. The study found that many adults under the age of 35 have chosen to stay at home with their parents instead of purchasing their own home; however, they do believe in the value of home ownership and do plan to buy. Another study found that 86 percent believe they will ultimately own a home and 70 percent felt this was a good time to buy. They just don’t feel the need to rush into it before they are thoroughly qualified. But, the fact is, monthly mortgage payments currently compare more favorably to rents than anytime since the 1970s.
The report projected the impact of the ‘echo boomers’ over the next two decades: If the economic recovery continues over the next few years, echo boomers entering into adulthood should support the addition of about one million new households per year over the next 10 years. The echo boomers have the potential to spur new home demand to an even greater extent than their parents did starting in the 1970s, in the next 20 years.
This new generation already outnumbers the baby boomersat the same age. Even modest immigration will help this group to grow larger. If housing affordability continues at historic lows, more and more of the echo boomers will take the plunge into home ownership
Q. I heard that the government implemented some sort of stimulus to improve the housing market. Could you explain in layman terms what this is and how it will help?
A. The stimulus is called QE3 – short for “Quantitative Easing- Round 3.” I hope 3 will indeed be a charm this time.
This is a policy where the Fed buys up debt instruments or assets in an effort to push down long-term interest rates. Their hopes are that lower long-term rates will stimulate the economy by giving consumers and businesses an incentive to borrow and invest more. (It is now cheaper to borrow). Sometimes the Fed’s actions don’t do as much as theyhoped, as far as moving rates, but QE 3 seems like it will be effective because the Fed has committed to buy up “mortgages” (mortgage backed securities) of $40 billion per month. This represents about 25 to 30 percent of overall mortgage volume; this increase in demand will bring down rates. The Fed has committed to QE 3 indefinitely, too, so rates are expected to remain low for a long time.
Q. Please remind me of what expires at the end of this year pertaining to short sales.
A. It is the forgiveness for state and federal taxes on the forgiven amount on a short sale. So, if you are considering a short sale, now is the time to discuss this with a qualified Realtor and get started. There is just enough time to complete most short sales before the end of the year.
Remember, if you are not behind in your payments, you can still do a short sale. It will not affect your credit to the point that you can’t buy a lesser property immediately afterward. Also remember that a foreclosure is much worse on your credit record.