Bigger homes – bigger mortgages
House size is on the rise. In 2013 the average new home size in the U.S. hit a record 2,679 square feet. “That’s about 150 square feet larger than it was in 2012,” said Rose Quint, a researcher with the National Association of Home Builders (NAHB). “It’s been rising four years in a row – it’s the largest it has ever been.” Almost half of the new single-family houses that builders across the U.S. constructed in 2013 had four bedrooms or more, Quint told builders meeting in Las Vegas last week. “That’s up from 34 percent in 2009,” she said. Sixty percent of houses constructed last year had two or more stories, too. Average new home sales prices in the U.S. hit $318,000 last year, Quint said. That’s because of the shift in the housing industry to more affluent buyers. “It’s not surprising to see what’s been happening to the average price,” she said. “Why are homes getting so big? It takes very high credit scores and very nice income to be able to qualify for a mortgage.” The average household income of new homebuyers now tops $108,000. No wonder that the share of young, first time homebuyers has plunged. “In normal circumstances the first-time homebuyer is 30 percent of the market – it’s 20 percent now,” according to NAHB.
Taking a look back at my parents or grandparents and their families, most of the families back in the old days had households with 6 to 8 kids. Today we have 1 to 3 kids per household. So now let’s look at the possible answers for the question above “why are homes getting so big?”
Call me crazy, but I am about to jump out on a limb here, after all it is a blog or a matter of just my opinion right? So other than our mothers asking “when you grow up, don’t you want that big house on the hill?” From there does our desires of having everything large take us to the edge? However from the other side two things come to mind, profits and discrimination.
Today everyone talks about corporate profits and almost everyone turns away from or deflects the truth about discrimination or class warfare. Let’s get real I am not going to point fingers but let’s talk about what’s really happening.
First profits, If the CFPB cracks down on all the joint business ventures between builders and lenders, they cut out profits. If ATR/QM caps a lender’s compensation, hence reducing profit, we need to look at the impact of this. If you only have 160 working hours in a month, would you rather make $5,000 or $1500 of income for that time frame? The math speaks for its self. If it takes a builder three months to build a home and the profit is based on square feet, why build smaller. If a lender’s compensation is capped at 3% and the cost of labor and over head is the same for all loans why work a $60,000 loan when the same labor of time and efforts could be spent on a $200,000 loan? It’s not rocket science.
Most loan originators get over 90% of their business from the builders or realtors they have developed working relationships and trust with. Since the board of realtors always publishes and promotes their top agents it’s easy to find who is working in the higher priced areas.
Almost all buyers go directly to the Realtors or Builders prior to finding a lender / mortgage broker. In today’s market economy almost every realtor will ask a buyer if they have been pre qualified before showing them homes. What happens next is really dependent on the attitude of the realtor as to where they send them to get pre-qualified.
Here comes the discrimination part, discrimination by class, whether intentional or unintentional. First let’s start with homeowner associations. Many of the HOA’s in order to help create “better neighborhoods” it would be best to require minimum square foot requirements for new construction. Many of these HOA’s have been increasing the minimum home size or have added more expensive requirement in the features of the homes over the past few years. This forces homes values up, which in turn seeks if not almost forces a boundary type barrier so only the more well affluent buyer would be right for the community.
Now let’s look at first time home buyers, getting an FHA loan with the mortgage insurance at 1.75% chance are the buyer who once could have qualified for a $150,000 home now may only qualify to purchase a $115,000. Generally homes with values less than $100,000 need a lot of TLC. Most often these homes are in need of a roof or other major repairs that will not meet a lenders requirement for underwriting.
There is actually more work required by a realtor in order to get these homes to the closing table. Most of your good realtors will pass these types of buyers off to the lesser experience realtor. Now let’s throw in all the requirements and restrictions in lending, add all these factors together and you have nearly destroyed the first time home buyer market. When in fact it’s mostly investors buying these properties and renting them out at almost twice the cost of a mortgage loan.
If you have a government who changed the rules by adding so many restrictions and regulations on the industry’s professional licensees it’s no wonder why their focus is only on those buyers that are more organized and are capable of purchasing higher compensation producing properties.