STUDENT DEBT IS DRAGGING HOUSING DOWN
Educated young adults starting families are a natural market for starter homes. But the current generation of graduates are facing a headwind their parents didn’t face: student loan debt. Real estate market analyst John Burns has had his eye on the student debt factor for years. Last month, Burns invited non-clients to view a white paper he originally created for his builder and developer clientele in 2014 (see: “Student Debt and Delayed Homeownership,” by John Burns).
Total student loan debt almost quadrupled from 2003 to 2014, Burns noted, climbing steadily from $241 billion to $1.1 trillion. Almost 4 million adults under 40 years old were paying $250 to $500 a month in student loan repayment by 2014, with another 1.5 million households paying from $500 to $750 a month. That debt knocks down the home purchase amount a household can finance — and the result, Burns calculates, is to prevent more than 400,000 housing transactions a year. That adds up to $80 billion a year in lost economic activity for the building sector, according to Burns’ estimate.
On top of the student debt burden, first-time buyers face another hurdle: supplies of entry-level housing are tight. Curbed had a report on March 23 (see: “U.S. housing inventory reaches historic lows, hurting first-time buyers,” by Patrick Sisson). Trulia identified three reasons for the scarcity at the bottom of the market (see: “Don’t Call It A Comeback: How Rising Home Values May Be Stifling Inventory,” by Ralph McLaughlin): “(1) investors bought up much of the foreclosure home inventory during the financial crisis and turned them into rental units, (2) price spread – that is, when prices of homes in different segments of the housing market diverge from each other – makes it difficult for existing homeowners to trade up to the next segment, and (3) slow home value recovery was making it difficult for some homeowners to break even on their homes.”
Even investors may be scraping the bottom of the barrel in the starter-home segment of the market — and they’re responding by building their own homes, or buying new homes fresh off the griddle. Bloomberg had a report (see: “Foreclosures Dry Up and a Hot Wall Street Trade Gets New Look,” by Heather Perlberg). “American Homes 4 Rent, a five-year-old real estate investment trust and the biggest of the publicly traded landlords by number of homes, is buying lots and houses around the U.S. Colony Starwood Homes plans to purchase at least 600 just-erected properties over the next year from more than a dozen builders. Privately held AHV Communities LLC is plotting whole neighborhoods for those who want — without the bother of ownership — single-family residences with some apartment-complex bells and whistles, such as fitness centers and bocce-ball courts. Residents don’t even have to mow their lawns.”
And as young buyers find it hard to save up a down payment, even production builders are starting to target renters. Wrote Bloomberg: “Even Lennar Corp., the second-largest U.S. homebuilder, is in on the game. It created its own rental-only community in Sparks, Nevada, a Reno suburb, starting with about 80 homes in 2015. Now there are 225, with all but two occupied as of last month, according to the local leasing office.”
But there may be light at the end of the tunnel: Recent numbers seem to indicate that new households are starting to buy again. Fox Business had a report in May (see: “Generation of Renters Now Buying,” by Laura Kusisto and Chris Kirkham). “Tracking home sales to a particular age group is hard,” the network reports, “but a series of data points form a mosaic of a generation of young people ready to buy: The number of new-owner households was double the number of new-renter households in the first quarter of this year, the share of first-time buyers is creeping back toward the historical average, and mortgages for first-timers are on the rise… In a shift, new households are overwhelmingly choosing to buy rather than rent. Some 854,000 new-owner households were formed during the first three months of the year, more than double the 365,000 new-renter households formed during the period, according to Census Bureau data.”
HURRICANE SEASON BEGINS
June 1 marks the official start of the Atlantic hurricane season. Experts expect it to be a busy one, as the Weather Channel noted (see: “2017 Atlantic Hurricane Season: Expect It to Be Busier Than Usual,” by Jon Erdman and Linda Lam). The Colorado State University (CSU) Tropical Meteorology Project, headed by Dr. Phil Klotzbach, sees a 55% chance of a major hurricane striking the United States coast this year, including a 33% chance of landfall on the Atlantic coast and a 32% chance of landfall on the Gulf Coast (see: “Extended Range Forecast of Atlantic Seasonal Hurricane Activity and Landfall Strike Probability for 2017,” by Philip J. Klotzbach and Michael M. Bell).
The Washington Post‘s “Capital Weather Gang” also had a report (see: “Hurricane season kicks off today, and odds are it will be busier than normal,” by Brian McNoldy). The government’s National Hurricane Center is introducing some new forecast communication products, the Post notes:
- Fully operational storm surge watches and warnings
- The ability to issue advisories and warnings for storms that have not yet “formed”
- A “time of arrival” of dangerous winds graphic
- An updated look and content for the forecast cone graphic
Storm surges can be the most dangerous factor when a hurricane strikes the shore, the Post notes. And as sea levels rise, that threat sharpens. The Houston Chronicle took a look at the storm-surge risk on Galveston Island, where Hurricane Ike’s surge wreaked havoc in September 2008, and some residents failed to evacuate because the storm’s winds were rated only at Category 2 (see: “Some Texans monitor rising sea levels amid hurricane threats,”). “Sea levels are generally rising faster along the Texas Gulf Coast and the western Gulf than the average globally, according to a January study by NOAA,” the paper reported. “Sea-level rise is making storm surges larger, said John Nielsen-Gammon, Texas state climatologist at Texas A&M University in College Station.”
The hurricane season arrives with government agency budgets in limbo, and some top government posts unoccupied, reported the Tampa Bay Times (see: “Hurricane season starts with nobody in charge at FEMA or NOAA,” by Craig Pittman. “Five months after Donald J. Trump was sworn in as president, no one has taken the reins at the Federal Emergency Management Agency, which is in charge of preparing for and then dealing with the aftermath of a hurricane,” the paper reported. “Trump finally nominated someone at the end of April, but he has yet to be confirmed. Trump meanwhile has made no move to appoint a new boss at the National Oceanic and Atmospheric Administration, the agency in charge of the National Hurricane Center and the National Weather Service, which provide hurricane forecasts and hurricane warnings in advance of a storm.” NPR also had a report (see: “Disaster Agency To Weather Hurricane Season With No Leader, Proposed Cuts,” by Greg Allen. “For states and communities hit by floods, tornadoes, wildfires and other disasters, the Trump budget slashes another important source of recovery funds,” NPR reported. The Department of Housing and Urban Development provides money that helps communities rebuild after a disaster, after FEMA has moved on. The Trump budget cuts that $3 billion fund to zero.
CANADA MOVES TO BOLSTER LUMBER INDUSTRY
Canada is moving to shore up its domestic lumber producers in the face of recently imposed U.S. trade penalties on softwood exports. Bloomberg had a report on June 1 (see: “Canada Offers $642 Million in Lumber Aid Amid U.S. Trade Row,” by Josh Wingrove, Greg Quinn, and Jen Skerritt). “The government announced the C$867 million ($642 million) plan Thursday after a meeting of Prime Minister Justin Trudeau’s cabinet,” Bloomberg reported. “The funding includes C$605 million in loans and loan guarantees at unspecified “commercial terms,” and C$163 million in transition funding for lumber companies. The loans, which will be offered through the Business Development Bank of Canada and Export Development Canada, could be expanded at a later date.” (Note: dollar amounts vary in the reporting on this story because of the exchange rate between the Canadian and United States currencies.)
The U.S. lumber lobby pushing for trade penalties reacted negatively, reported CBC News (see: “Ottawa announces $867M in financial assistance for softwood lumber industry,” by Peter Zimonjic, Susan Lunn, and John Paul Tasker). “Today’s announcement of a new government subsidy for Canadian softwood lumber producers only further tilts the trade scale in Canada’s favour, threatening more than 350,000 jobs in communities across the Unites States,” said U.S. Lumber Coalition spokesperson Zoltan van Heyningen. But Canadian Natural Resources Minister Jim Carr said Canada thinks its response will “stand the test of scrutiny,” CBC News reported: “He also said he is not worried about further criticism from the U.S. that Canada is subsidizing the industry with this financial support, because the loans are at market rates.”
“Derek Nighbor, the CEO of the Forest Products Association of Canada, welcomed the assistance offered to the industry Thursday but warned the government must not be seen to be subsidizing the industry,” CBC News reported. “The government needs to be careful on the issue of loan guarantees because, remember, this whole U.S. trade action is about subsidies, so anything the government does is going to be closely watched by the U.S.,” Nighbour told CBC News.
FLOOD INSURANCE: THE CLOCK IS TICKING
With hurricane season ramping up, the clock is winding down for Congress to reauthorize the National Flood Insurance Program (NFIP). Florida station WGCU had this report (see: “Deadline Looms To Reauthorize National Flood Insurance Program,” by Quincy J. Walters). “The NFIP has racked up nearly $25 billion in debt–paying for people affected by Katrina, Sandy and other disasters–and despite that, members of Congress from both sides of the aisle want it reauthorized, but reformed,” the station reported. “Republican Congressman Francis Rooney of Naples said he and other Florida representatives are discussing the program’s future with Congress’ Financial Services Committee.”
Morning Consult had a closer look at the political maneuvering (see: “Flood Insurance Becoming Top House GOP Finance Priority,” by Ryan Rainey). “Members of the House Financial Services Committee, which scheduled a hearing on flood insurance for June 7, are engaged in substantive discussions about reauthorizing the National Flood Insurance Program that expires at the end of September,” the news website reported. “Lawmakers from both parties are working to make sure the program’s authorization doesn’t lapse, and that a short-term renewal isn’t necessary. Republicans have called for a five-year NFIP renewal that would focus on boosting the program’s financial standing while facilitating a transition to more private plans… Democrats have called for 10 years, according to an outline of priorities obtained by Morning Consult.”
STATE BY STATE
South Carolina: There’s controversy on Hilton Head Island about whether a pair of new homes with a deck connecting the houses violates local zoning, the Island Packet reported (see: “‘It’s a mini-hotel’: Homeowners fear connected properties could turn neighborhood into resort,” by Alex Kincaid). Built for use as vacation rentals, the two homes are designed as stand-alone properties. But the connecting deck, which falls into a permitting gray area, has local neighbors worried that the two homes may end up hosting big combined gatherings that could disrupt the neighborhood’s peace and quiet.
New York: Governor Mario Cuomo has announced a $151 million dollar grant to support construction of a seven-mile-long boardwalk and seawall for Staten Island, reported the Staten Island Advance (see: “Cuomo sees East Shore seawall promenade as tourist destination,” by Rachel Shapiro. A spokeswoman told the Advance the multi-use boardwalk “can support a range of recreational activities, including outdoor concerts, beer and food tastings, cultural festivals, nature walks, seaside carnivals, bike races, marathons and other running competitions, environmental education, and other events and community gatherings.” The structure would be designed to protect the waterfront from a storm surge comparable to Hurricane Sandy’s in 2012, which took dozens of lives in Staten Island.