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Millennials: The Issues Facing Emerging U.S. Homebuyers

Ned Myers, Black Knight Financial Services

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National & State Level Affordability

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Nationally, homes remain more affordable than pre-bubble “norm”

~26% pre-bubble “norm”(2000-2002)

Max in July 2006 at 34.7%

Trough in Oct 2012 at 17.6%

Currently ~21%

Payment to Income Ratio = macro level DTI ratio wherein the numerator is the median household income and the mortgage payment is calculated by using the median home price and the Freddie Mac 30 year interest rate

Interest Only and NegAm originations contributed to an inflation in buying

power during the housing bubble


Varying affordability trends seen across the country



About Tableau maps: www.tableausoftware.com/mapdata

AL24.1%

AR18.2%

AZ18.6%

CA32.5%

CO19.8%

CT16.9%

DC39.9%

FL19.3%

GA16.8%

IA13.5%

ID16.8%

IL16.4%

IN12.6%

KS19.8% KY

17.3%

LA21.7%

ME25.9%

MI13.3%

MN16.5%

MO15.5%

MS24.1%

MT24.6%

NC20.4%

ND30.0%

NE13.7%

NH14.8%

NJ22.4%

NM20.8%

NV20.2%

NY28.4%

OH13.9%

OK17.4%

OR21.1%

PA17.6%

SC18.9%

SD21.7%

TN18.0%

TX17.1%

UT16.9%

VA20.8%

WA21.3%

WI14.0%

WV28.0%

WY18.2%

DC, HI, CA currently have least affordable housing nationwide

Payment to Income Ratios as of December 2014


State Payment to Income RatioDC 39.9%HI 35.4%AK 21.1%


DC, HI, AK currently less affordable than in 2000-2002; CA nearing pre-bubble levels

Change in Payment to Income Ratio (Current vs. 2000-2002)

State Affordability RatioDC 5.2%HI 7.5%AK 1.1%


IL-10.8%

MS-10.6%

AR-7.1%

AZ-5.7%

CA-1.3%

CO-8.3%

CT-7.2%

AL-6.2%

DE-0.5%

FL-5.3%

GA-7.6%

IA-7.2%

ID-6.2%

WY-2.2%

IN-6.4%

KS-7.0% KY

-5.6%

LA-3.8%

ME-7.5%

MI-9.6%

MN-4.8%

MO-6.0%

MT-2.4%

NC-5.5%

ND-3.0%

NE-6.1%

NH-7.0%

NJ-3.5%

NM-5.1%

NV-2.7%

NY-2.7%

OH-6.9%

OK-5.2%

OR-4.7%

PA-4.1%

SC-6.5%

SD-7.9%

TN-6.4%

TX-6.5%

UT-5.9%

VA-6.4%

WA-6.5%

WI-6.3%

WV-9.1%

As Payment to Income Ratios represent a synthetic DTI, a lower payment to income ratio represents more affordable home purchases

State Change in Payment to Income RatioDC 4.3%HI 6.9%AK 0.6%



AL-3.2%

AR-4.8%

AZ-3.3%

WA-3.8%

CO-5.8%

CT-5.1%

IL-8.8%

WI-4.5%

FL-2.9%

GA-5.5%

IA-5.5%

ID-4.1%

WV-5.6%

IN-4.8%

KS-4.5% KY

-3.5%

LA-1.1%

NM-2.5%

ME-4.3%

MI-7.9%

MN-2.7%

MO-4.1%

MS-7.6%

UT-3.7%

NC-2.9%

NE-4.4%

NH-5.1%

NJ-0.6%

NV-0.2%

OH-5.1%

OK-3.0%

OR-2.1%

PA-1.9%

SC-4.2%

SD-5.2%

TN-4.1%

TX-4.4%

VA-3.8%CA

2.8%

DE2.3%

ND0.7%

NY0.9%

MT0.6%

WY0.1%

1% interest rate increase would push 7 additional states above 2000-2002 payment to income levels

Change in Payment to Income Ratio (Current with 1% rate increase vs. 2000-2002)

As Payment to Income Ratios represent a synthetic DTI, a lower payment to income ratio represents more affordable home purchases

With a 1% rate increase DE, CA, MD, NY, MT, ND, and WY would be less affordable than pre-bubble “norms”


National Affordability

200001 200011 200109 200207 200305 200403 200501 200511 200609 200707 200805 200903 201001 201011 201109 201207 201305 201403 2015010%

5%

10%

15%

20%

25%

30%

35%

40%

Estimated Payment to Income Ratio by Age Group Over Time25-24 35-44 45-54 55-64

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A Comparison of Popular Millennial Metros


Median Home Prices in Subject Markets

United States Austin, TX Denver, CO Houston, TX San Francisco, CA Washington D.C.0

100000

200000

300000

400000

500000

600000

700000

800000

Bubble Max Crisis Min Current


Median Home Prices over Time

United States Austin, TX Denver, CO Houston, TX San Francisco, CA Washington D.C.0

100000

200000

300000

400000

500000

600000

700000

800000

200003 200606 201201 201503


Mortgage Payments by Price Tier

United States Austin, TX Denver, CO Houston, TX San Francisco, CA Washington D.C. $-

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$90

9

$99

9

$1,

140

$78

3

$2,

529

$1,

433

$38

5

$54

3

$60

6

$42

1

$1,

111

$69

8

$61

1

$72

1

$88

4

$54

7

$1,

823

$1,

056

$85

6

$91

5

$1,

119

$70

0

$2,

557

$1,

399

$1,

246

$1,

265

$1,

428

$97

1

$3,

466

$1,

872 $

2,47

8

$2,

192

$2,

246

$1,

874

$5,

791

$3,

123

Median Home Tier 1 Tier 2 Tier 3 Tier 4 Tier 5


Payment on Median Homes over Time


$500.00

$1,000.00

$1,500.00

$2,000.00

$2,500.00

$3,000.00

$3,500.00 $

921.

98

$96

4.04

$1,

178.

13

$83

7.58

$1,

943.

53

$1,

115.

04

$1,

144.

70

$88

6.18

$1,

178.

94

$78

0.23

$2,

947.

68

$1,

894.

16

$92

5.10

$91

3.56

$1,

011.

36

$74

6.71

$1,

984.

96

$1,

466.

78

$90

9.13

$99

8.86

$1,

140.

17

$78

3.41

$2,

529.

07

$1,

432.

74

200003 200503 201003 201503


Estimated Mortgage Payments by Price Tier


$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$90

9

$99

9

$1,

140

$78

3

$2,

529

$1,

433

$38

5

$54

3

$60

6

$42

1

$1,

111

$69

8

$61

1

$72

1

$88

4

$54

7

$1,

823

$1,

056

$85

6

$91

5

$1,

119

$70

0

$2,

557

$1,

399

$1,

246

$1,

265

$1,

428

$97

1

$3,

466

$1,

872 $

2,47

8

$2,

192

$2,

246

$1,

874

$5,

791

$3,

123

Median Home Tier 1 Tier 2 Tier 3 Tier 4 Tier 5


County Level Opportunities Exist: DC

1996011998102001072004042007012009102012070

100000

200000

300000

400000

500000

600000

700000

Alexandria city, VA Arlington County, VACalvert County, MD Charles County, MDClarke County, VA Culpeper County, VADistrict of Columbia, DC Fairfax city, VAFairfax County, VA Falls Church city, VAFauquier County, VA Frederick County, MDFredericksburg city, VA Jefferson County, WVLoudoun County, VA Manassas city, VAMontgomery County, MD Prince George's County, MDPrince William County, VA Rappahannock County, VASpotsylvania County, VA Stafford County, VAWarren County, VA Washington-Arlington-Alexandria, DC-VA-MD-

WV


County HPI: San Francisco

1996011997071999012000072002012003072005012006072008012009072011012012072014010

200000

400000

600000

800000

1000000

1200000

Alameda County, CAContra Costa County, CAMarin County, CASan Francisco County, CASan Francisco-Oakland-Fremont, CASan Mateo County, CA


MLS Sales % of Monthly Inventory by Price Tier

2014

12

2015

01

2015

02

2014

12

2015

01

2015

02

2014

12

2015

01

2015

02

2014

12

2015

01

2015

02

2014

12

2015

01

2015

02

Austin-Round Rock, TX Denver-Aurora-Lakewood, CO

Houston-The Woodlands-Sugar Land, TX

San Francisco-Oakland-Hayward, CA

Washington-Arlington-Alexandria, DC-VA-MD-

WV

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

12345


How much house can one buy?

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200

400

600

800

1000

1200

1400

1600 $1,466

$458 $428

$237 $184 $155 $140 $131 $127$207 $262

$513

$153$260

MLS Inventory - Price Per Square Foot

*Top 10 MSAs by Inventory in Blue


REO Sales are a declining % of total sales

200501 200508 200603 200610 200705 200712 200807 200902 200909 201004 201011 201106 201201 201208 201303 201310 201405 2014120%

10%

20%

30%

40%

50%

60%

United States Austin, TX Denver, COHouston, TX San Francisco, CA Washington D.C.


But the REO discount is less pronounced in hot markets

200501 200508 200603 200610 200705 200712 200807 200902 200909 201004 201011 201106 201201 201208 201303 201310 201405 2014120%

5%

10%

15%

20%

25%

30%

35%

United States Austin, TX Denver, COHouston, TX San Francisco, CA Washington D.C.