Tom Wurdack

The next wave of home buyers is forming
Reported by Elia Powers, St. Louis Beacon

St. Louis - The online news publication, The Beacon, a non-profit organization dedicated to bringing news that matters to our region, reported this week about a positive trend affecting the local real estate market.

Reporter Elia Powers suggests that “people in their 20s and 30s are enthusiastic about the housing market and the prospect of home ownership.” Demographers have labeled this group Generation Y. One of the first major surveys to identify this positive trend was conducted by the Concord Group, a real estate consulting firm.

The study’s goal was to identify what will motivate members of Generation Y as they enter the home buying market. A sample of 200 people in the 20-to-34 age range was taken. Most of them live in urban areas, work in service-based professions, are college graduates, have a household income of less than $100,000 and currently rent.

From the Concord Group’s survey, the Beacon reported that “most respondents see real estate as a good financial investment. Half of the young professionals say they are ‘very likely’ to buy a home within the next three years. Also, half of those surveyed said tax credits or lower interest rates would motivate them to buy a place sooner.”

The Obama administration and congress agree that this type of first-time homebuyer can be the engine that will help drive the real estate market out of its present slump. The $8,000 tax credit provided by the American Recovery and Reinvestment Act of 2009 is one major incentive for first-time homebuyers. But the current real estate market’s historically low interest rates, depressed home prices, coupled with a large home inventory available, could motivate Generation Y into buying.

“While current homeowners have seen their property values take a nose dive,” offers reporter Powers, “the upshot could be that more young people will have a chance to buy houses that just last year seemed out of their price range.”

The study revealed the most popular answer for the question, “How old will you be when you buy your first home?” was 25-30. Generation Y’s cash strapped parents will be happy to know only 40 percent of young people say they are planning on receiving help for a down payment on the purchase of their next home.

Fed Economists Say Mortgage Changes May Not Stem Foreclosures

By Scott Lanman

April 10 (Bloomberg) — Policies aimed at easing home-loan terms for troubled borrowers may not be as effective in preventing foreclosures as more-direct aid to homeowners, Federal Reserve economists found.

Job losses and falling home prices have a bigger impact on delinquencies than mortgage terms, and modifications aren’t necessarily a better deal for investors than foreclosures, according to a paper by two current and one former economist at the Boston Fed Bank and one Atlanta Fed researcher.

The conclusion poses a challenge to housing advocates and to some extent the prevailing views of President Barack Obama’s administration, Fed officials and other U.S. regulators. Obama announced a $75 billion plan in February that concentrates on refinancing or modifying loans for as many as 9 million homeowners.

“One of the most influential strands of thought contends that the crisis can be attenuated by changing the terms of ‘unaffordable’ mortgages,” the economists said in the paper posted on the Boston Fed’s Web site today. Yet policies aimed at reducing a borrower’s debt-to-income ratio “face important hurdles in addressing the housing crisis,” the authors said.

Instead, the government should consider alternatives such as loans to homeowners to bridge the loss of income for one or two years caused by unemployment, or helping borrowers become renters, the economists said.

Boston, Atlanta

The authors include Christopher Foote and Paul Willen, who are senior economists and policy advisers at the Boston Fed; Kristopher Gerardi, a research economist and assistant policy adviser at the Atlanta Fed; and Lorenz Goette, a professor at the University of Geneva and former economist at the Boston Fed.

The paper doesn’t specifically discuss the merits of the White House plan.

The federal government has used policies to encourage loan modifications as a principal tool of attacking the surge in foreclosures over the past year. Fed Chairman Ben S. Bernanke, in a December speech, called for “greater standardization and efficiency” in programs to ease loan terms, while FDIC Chairman Sheila Bair has pressed the Treasury and mortgage companies to step of the pace of modifications.

Eric Rosengren, president of the Boston Fed, said in a January speech that loan servicers should be able to increase mortgage modifications as interest rates decline.

At the same time, many borrowers should be able to refinance through Federal Housing Administration loans, Rosengren said in the speech. Also, some borrowers just won’t be able to make their mortgage payments and could instead receive assistance to move to a rental property, he said.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net