FINANCE: Housing on the Mend

By Patricia Kummer; Kummer Financial Strategies- Highlands Ranch
Posted

The Case- Shiller Price Index was just released showing improvement in housing.  Home prices in Colorado were up 9.9 percent over last year with a national average of 9.3 percent across 20 major cities.¹ This may be the year to put your house on the market if you have been waiting for housing prices to improve.

Interest rates for mortgages remain at record lows, allowing more home buyers to lock in long-term loans at reasonable rates.  Inventories are reduced to a four month supply.  This is due to several years of little or no new building which is gradually pushing prices back up due to higher demand than there is supply.

Professor Karl Case, co-creator of the Case-Shiller Index indicated that there are other trends starting to occur in housing that will have an impact on the types of homes built in the future.²   Millions of baby boomers can be blamed for the trend towards zero lot lines, no maintenance, single story housing.

There also seems to be a strong trend towards renting for people of all ages.  This creates the need for more high-density housing such as apartments, townhomes, patio homes and brownstones.  These models allow for the mobility of empty-nesters who want to downsize; retirees who want to travel and newlyweds starting out.

Another popular trend in older generations is to purchase or refinance for a 30 year mortgage.  This is something that was inconceivable 50 years ago – to have a mortgage commitment beyond your life expectancy.  This is basically “renting” your own home with no intention of ever paying it off.  This supports the fact that people rarely stay in one home their entire adult life anymore, therefore flexible mortgages and smaller houses are likely here to stay.

Many first time home buyers and mature adults alike are seeking more types of community living in more condensed housing that offers amenities and social activities.  This may not bode well for the four bedrooms, three car garage house on acreage.   Retirees don’t want to feel isolated and young families like the synergy of community neighborhoods convenient to stores and restaurants.

This may explain the boom to urban living over rural.  As downtown districts in cities across the nation beef up attractions and high rise residences, more people are flocking to the cities to reduce driving and be close to work and entertainment.

Housing seems to move in cycles largely impacted by the demographic of the current home buyer.  Houses, similar to other staples that no longer last a lifetime, such as cars and appliances, are being considered by many to be temporary.  Currently, there appears to be an appetite for apartment type dwellings and a lifetime of mortgage payments or rent.   

  1. S&P Case-Shiller Index; USA Today 2. CNBC interview 4.30.13 

Patricia Kummer has been an independent Certified Financial Planner for 26 years and is President of Kummer Financial Strategies, Inc., a Registered Investment Advisor in Highlands Ranch, 3 year Top Wealth Manager 5280. She welcomes your questions at www.kummerfinancial.com or call the economic hotline at 303-683-5800.Any material discussed is meant for informational purposes only and not a substitute for individual advice.