Young Home Buyers Return in U.S.
as Economy Accelerates
By Kathleen M.
Howley Jan 5, 2015 2:00 AM CT
After Damien and Tina Bucci were approved for a mortgage in
2012, they decided they couldn’t afford the biggest purchase of their lives
without greater confidence in the U.S. economy. Next month, they will close on
their first home -- a four-bedroom Colonial with a half-acre yard.
“We could have made it work two years ago but it would have
stretched our budget too thin,” said Damien Bucci, 30, from the kitchen of his
two-bedroom apartment in a 238-unit development in Fairless Hills,
Pennsylvania. “Financially, we’re in a lot better position now.”
The Buccis have been shut out of the housing market since
its rebound in 2012 from the biggest collapse since the end of World War II and
now are belatedly part of its recovery. They will benefit from faster economic
growth and a labor market that’s approaching what the Federal Reserve calls
“full employment,” meaning anyone who wants a job has one. An increase in
first-time buyers, whose market share dropped to a record low last year, will
provide a boost to the sluggish mortgage industry.
“Credit tightness has been an issue for the housing market
but demand weakness has been a bigger one,” said Douglas Duncan, chief
economist at mortgage giant Fannie Mae in Washington. “The improving economy is
going to put renters in a better place to buy.”
Duncan predicts a 6.3 percent increase in mortgage lending
for purchases this year after a drop of 9.6 percent in 2014. He said increasing
confidence in the job market is the strongest indicator home sales will
improve.
Confidence Grows
The Thomson Reuters/University of Michigan consumer
sentiment poll showed last month that consumers expect an increase of 1.7
percent in their incomes in 2015, the highest since 2008. Those under
45-years-old expect the biggest gain, at 4.7 percent.
“Young renters have wanted to keep their living situations
flexible because they didn’t know if they were going to have to move for a
job,” Duncan said. “More of them are going to be willing to put down roots if
they feel more confident in the labor market.”
Economic growth, bolstered by consumer spending and business
investment, is accelerating. The U.S. grew at a blistering pace of 5 percent in
the third quarter, the fastest since 2003, the Commerce Department said at the
end of December. The Fed said last month it expects the economy will expand
between 2.6 percent and 3 percent in 2015, up from 2.3 percent to 2.4 percent
in 2014.
The economy added more than 2.7 million jobs last year, the
most since 1999, according to the Bureau of Labor Statistics. The jobless rate
will average 5.2 percent to 5.3 percent, levels last seen before the financial
crisis, according to the Fed.
Wages Accelerate
“With the labor market firming, wages are starting to
accelerate,” said Diane Swonk, chief economist of Mesirow Financial Inc. in
Chicago and chairwoman of the Securities Industry and Financial Markets
Association’s Economic Advisory Roundtable. “Companies are finding themselves
having to compete for workers, and then compete to retain them.”
The median household income in 2014 rose 1.6 percent to
$53,880 through November, according to Sentier Research LLC. That pace should
continue into 2015, said Swonk. For all of 2013, the gain was 0.1 percent.
“People who see their cash flow go up are going to feel a
lot more confident about making a home purchase,” Swonk said.
Young Americans are making more money as technology
companies ratchet up spending and hire. Business investment in intellectual
property, which includes software and computer programming, accounted for 0.34
percent of the economy in the third quarter, up from 0.11 percent in the year
earlier period, according to inflation-adjusted data from the Bureau of
Economic Analysis.
Google Hires
The median age of employees is 28 at Facebook Inc., 30 at
Google Inc. and 31 at Apple Inc., according to a study last month by PayScale
Inc., a company that sells compensation software. Facebook hired about 2,000
workers last year through September, up from 1,175 in the year-earlier period.
Google added about 7,300 positions in the first nine months of 2014 and Apple
hired about 12,300 employees, according to regulatory filings.
Younger workers were the worse-hit during the recession. The
unemployment rate peaked in 2009 at 10.6 percent for people aged 25 to 34 years
and 9 percent for ages 35 to 44.
In November, the unemployment rate for people 25 to 34 years
old was 6.1 percent, the lowest since 2008. For the 35 to 44 age group, it was
4.3 percent, matching the September level that was the lowest since 2008.
The Buccis, who have a three-year-old daughter and a
six-month old son, decided last year that their financial situation had
improved enough for them to buy a home. Damien is a high school teacher and
Tina cares full-time for the couple’s two children. They are paying $310,000
for their house in Chalfont, Pennsylvania, about 30 miles north of
Philadelphia.
“We’ve been living on a budget and saving money, so we’re in
a better place financially than we were two years ago,” Tina, 29, said. “Our
goal was to be out of the apartment before our second child started walking,
and we’re going to make it.”
Home Sales
Sales of new and existing homes this year probably will gain
5.4 percent to 5.7 million after falling 2.7 percent in 2014, according to
Fannie Mae’s Duncan. Lending for home purchases probably will grow to $714
billion from $672 billion last year, he said.
Household formation, a key measure of real estate demand,
will rise to 1.1 million in 2015, the highest in three years, according to a
forecast by IHS Global Insight Inc. First-time buyers accounted for about 29
percent of home purchases last year, according to data through November from
the National Association of Realtors.
“If the first-time buyers aren’t in the market, the sellers
can’t move up and buy their next houses,” said Bill Banfield, vice president of
Quicken Loans Inc. in Detroit, the third-largest U.S. lender. “The real estate
market needs an increase in entry-level demand” for it to be fully functioning,
he said.
Ricardo Bonafe, 37, plans to buy his first home this year.
He said he’s in the final stages of the hiring process for a job as a
correctional facilities officer. The pay will be better than his current job as
a roofing contractor, and the work will be more reliable, said Bonafe, who
lives on the northwest side of Chicago.
First-Time Buyer
“The last few years have been tough ones for me and my
family, but it looks like things have finally started to turn around for us,”
said Bonafe, who lost an information technology position at a non-profit group
four years ago.
Bonafe, his wife, Judy, and their two children have been
living at a friend’s house, paying rent as they save money for a down payment.
The couple said they plan to start looking at properties priced at about
$250,000 this month.
For Bonafe’s 12-year-old daughter, Trinity, the real measure
of the economy is whether she has to continue sharing space with her
10-year-old brother. If Bonafe’s plans for the New Year materialize, she’ll
have a room of her own.
“I grew up in a home my family owned, here in Chicago, and I
want to give them that same experience,” Bonafe said.
To contact the reporter on this story: Kathleen M. Howley in
Boston at kmhowley@bloomberg.net
To contact the editors responsible for this story: Vincent
Bielski at vbielski@bloomberg.net
