February 2105 Newsletter

Jeff Fleming headshot 2012Spring is just around the corner, right?!  This winter has been a brutal one.  Many of our AARC members have been on the road throughout the Northeast and Midwest recruiting retirees to more temperate climates in the South.   Do you really want another year of snow blowing, scraping windshields, and wearing layer upon layer of clothing?  Isn’t it time to simplify and lighten your load? 

Check out AARC’s Seal of Approval communities and explore your options for the retirement destination that fits your lifestyle. AARC is your source for the best in retirement destinations.  Whether it’s a planned retirement community or just a great town that welcomes retirees, AARC has already done the research for you!  I hope you’ll take to time to learn about our Seal of Approval communities here.


Jeff Fleming Chair, The AARC

4 Shifts Needed to Sell More Homes

By John Burns

J.Burns ConsultingAs noted during our consulting team’s visits to thousands of communities all over the country last year, and also shown by the slower 2014 sales in our master-planned communities survey, the land development and home building industries need to shift their mix of communities to target a different mix of buyers than the traditional mix. New home community segmentation needs to change in four ways:

  1. Less move-up housing
  2. More luxury housing
  3. More retiree housing
  4. More entry-level buyer housing—– but not yet

Less Move-Up Housing

Move-up buyers are traditionally 36—45 years old. Today, that means they were born in the 1970s. Here are a few facts about this group:

  • 18% fewer of them. 18% fewer people were born in the 1970s in the US than in the 1950s, which has been somewhat offset by a surge in immigration. This means that the US resale housing stock has more than enough homes designed for move-up buyers.
  • Insufficient equity.Many of those born in the 1970s bought their first home 10+/- years ago and thus are far less likely to have sufficient equity to move. They are also more likely to have gone through foreclosure, which has a marginally positive housing demand element to it, as some will return to homeownership soon. Not only are there fewer traditional move-up households, but a high percentage of them are unable to move.

Move-up housing success can be achieved in the right locations and with the right execution, but the total demand is much lower than usual. It just is not as easy. Our consultants have witnessed plenty of success, such as Line K in Virginia and La Vita in Irvine (both highlighted at www.DesignLens.com).

More Luxury Housing

Luxury homes, whether in urban or suburban environments, continue to outperform, and for very good reason:

  • Rise in affluence. The economic recovery has been fueled by low interest rates, which have increased the value of most assets—– stocks, bonds, homes, etc. This has heavily benefitted the rich, who are the primary owners of these assets.
  • More of them. Luxury home buying typically occurs when buyers reach their years of peak earning and net worth. The US currently has more people in this group, aged 46—60, than ever before, and they have more income (two careers) and less expenses (fewer kids) than any generation before them. Compared to prior generations, this group is loaded.

Ownership Society Slide

More Active Adult Housing

Eight million more people will turn 65 over the next 10 years than the last 10 years, and more of them than ever before plan to move, according to our Consumer Insights survey. This creates opportunities in all regions and at all price points, as the demand drivers are no longer solely golf courses in sunny states. Proximity to kids and grandkids, as well as entertainment, and health and wellness are just a few of the main success drivers we see over and over.

More Entry-Level Buyer Housing in Future Phases

The headlines about low entry-level buying activity mask the fact that entry-level buying is indeed already on the rise (we purchased this data for 166 MSAs) and will almost certainly increase steadily in the years the economy grows. Those born in the 1980s (currently 26—35) have delayed the need to buy a home by 3—5 years, creating pent-up demand. Consider that they are:

  • 10% higher in number than those born in the 1970s
  • Marrying 5 years later than their parents did
  • Having children 3 years later than their parents did
  • Struggling financially, since they entered the workforce in the worst economic downturn since the Great Depression and have more student loans than any generation before them

While entry-level buyers are financially challenged, the number of people is so large and the desire to own so high that many entry-level buyers will emerge over the next decade, especially if mortgage rates and down payment requirements stay low. While most will buy resale homes for affordability reasons, a small percentage of a large number will still translate to strong new home demand.


In summary, builders and developers should study their local market with an eye to building communities and homes for the following:

  1. Less move-up housing
  2. More luxury housing
  3. More active adult housing
  4. More entry-level buyer housing, but in future phases

The fastest growing economies, which tend to be in the south, will be where most of the opportunities abound.

Same Story, Different Day: New-Home Sales Are Up, Inventory Remains Low

February 25, 2015 – By Chrystal Caruthers, Relator.com

Screen Shot 2015-02-25 at 4.12.15 PMHere’s a measure of the weirdness of the American housing market circa early 2015: Today the Census Bureau and the Department of Housing and Urban Development  reported that sales of new homes in January were pretty much the same as in December, down by just 0.2%—and that’s considered good news. Analysts had expected sales to dip by a full 2%, but the rate remained essentially unchanged, with 481,000 new single-family homes going into contract, up 5.3% from a year ago. Hooray!

Or maybe: Hooray! This doesn’t change the overall portrait of the market much. Prices are way up—the median price is now $294,300, according to the report, up from $218,000 last January—and there’s only a 5.4-month supply of new homes to feed buyer demand at the current sales rate. In a normal market, there would be six months of inventory available.

“New-home sales started 2015 not losing ground to gains at end of 2014, but at this level they are still about 40% off what would be a normal volume,” said Jonathan Smoke, our chief economist here at realtor.com®. “The issue is affordability. Builders have traded higher prices and margins and steady demand for opportunity of higher volumes. Supply isn’t growing, and it isn’t helping the lack of supply on existing-home side, so we will continue to see home shoppers report that they can’t find homes to fit their needs and/or budget.”

Limited access to credit for smaller builders, rising construction costs, labor shortages, and fear that the entry-level buyer is too debt-ridden to return to the market have driven most builders to go after the luxury market or the move-up buyer. This has left the housing market with a distinct lack of available, affordable homes for first-time buyers. (The millions of you who read realtor.com obsessively will recall we’ve said similar things quite often in recent days.)

“A persistent lag in new home construction will lead to faster home price growth, which will negatively impact housing affordability,” said Lawrence Yun, chief economist at the National Association of Realtors®.

According to the NAR, there is a new construction housing shortage in 32 states and the District of Columbia.

NAR analyzed jobs created in every state and the District of Columbia for three years. It found that Florida, Utah, California, Montana, and Indiana, where job creation has been particularly strong, had the greatest disparity in new-home construction levels. Yun cautioned that these states could face persistent housing shortages and affordability issues unless housing starts increase to match local job gains.

Builders, however, say the market is affordable. According to the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index, nearly 63% of new and existing homes sold in the fourth quarter of 2014 were affordable to families earning the U.S. median income of $63,900.

“Affordable home prices, historically low mortgage rates, and an improving job market will release pent-up demand and help keep the housing market moving forward in the year ahead,” said David Crowe, chief economist at the NAHB.

Jumbo Borrowers Get the Red-Carpet Treatment

By Anya Martin, Real Estate News, The Wall Street Journal

Screen Shot 2015-02-25 at 4.16.59 PMIt’s awards season in the U.S., when the entertainment industry celebrates its top movies, music and TV shows. If the mortgage industry gave out prizes, jumbo borrowers would be big winners.

Some highlights from 2014:

• For a five-week stretch between August and September, jumbo rates were lower than those for comparable conforming mortgages.

• Many banks and credit unions began offering more jumbo options, some with down payments less than 20% and no private mortgage insurance requirements.

• Competitive housing markets in some areas fueled a rise in first-time homebuyers who took out jumbo mortgages.

A growing economy and stock market meant the more affluent had money and confidence to take on debt not just for primary residences but also second homes, says Tom Wind, executive vice president of mortgage operations of Jacksonville, Fla.-based EverBank. “The jumbo share of the market was much more purchase-driven in 2014,” he adds.

In 2014, the jumbo share of the market grew to 19% from 14.4% in 2013, its highest percentage increase since 2002, according to Inside Mortgage Finance, a publication that tracks the industry. Mortgage lending overall decreased 34.4% year over year, but jumbo lending was only down 12.5%, with a total volume of $238 billion compared with $272 billion in 2013, according to the publication.

Jumbo mortgages have loan amounts higher than the limits for government-backed loans, which are $417,000 in most areas and $625,500 in some high-priced places.

The top areas for high-paid professionals were also the places with the highest priced homes, such as the San Francisco Bay Area/Silicon Valley and Los Angeles in California, metropolitan New York City, Washington, D.C., and Boston, says John Schleck, centralized and online sales executive at Bank of America Home Loans.

Tight high-priced housing markets also helped fuel a 3% increase last year from 33% to 36% in first-time homebuyers with nonconforming loans at Bank of America, Mr. Schleck says. The average age of the bank’s jumbo borrower decreased from age 46 in 2013 to 44 in 2014, he adds.

Low interest rates are spurring more older affluent Americans to consider a mortgage.

Wells Fargo Home Mortgage also saw growth in its share of first-time jumbo buyers in Texas and Florida, where there are concentrations of high-priced homes, says Brad Blackwell, executive vice president at Wells Fargo Home Mortgage, the nation’s largest jumbo loan provider. “Texas is the second largest jumbo mortgage market [after California] because in Dallas, Houston and Austin, there is a lot of jumbo opportunity,” he adds.

New lower down payment jumbo products also have played a role in allowing more first-time homebuyers to qualify for loans, Mr. Blackwell says. Wells Fargo introduced an 89.9% loan-to-value jumbo product in midsummer 2014, and many other banks and credit unions now offer jumbo loans with down payments less than 20%—an industry standard post-recession. These loans have higher interest rates but don’t require private mortgage insurance like their government-backed counterparts.

Still, most jumbo borrowers must meet tight standards. For example, EverBank’s jumbo client profile remained roughly consistent with the 2013—average balance of $802,000, loan-to-value ratio of less than 70% and FICO score of 767 in the fourth quarter of 2014, Mr. Wind says.

Low interest rates are spurring more older affluent Americans to consider a mortgage, says Guy D. Cecala, CEO and publisher of Inside Mortgage Finance. “I am hearing anecdotally about more people in their 60s buying a new home or a second home who are getting sizable mortgages for the tax deduction and to keep more in investments,” he adds.

The average interest rate for a 30-year fixed-rate jumbo mortgage started at 4.59% in January 2014, but stayed below 4.25% from July through December, according to HSH.com, a real estate financing website. Adjustable-rate mortgages, popular with jumbo borrowers, also had low monthly average rates, with the five-year ARM staying around 3%, HSH.com data showed.

Fewer jumbo borrowers refinanced in 2014—many had already done so in 2013, and interest rates last year, while low, weren’t low enough to trigger another frenzy, says Mike Fratantoni, chief economist for the Mortgage Bankers Association.

As 2015 began, the average interest rate for a 30-year fixed jumbo mortgage dropped below 4% and was at a historic low of 3.92% on the week ending Jan. 30, according to HSH.com. On the week ending Jan. 9, refinance volume had rocketed to 71% of total applications, its highest level since July 2013, according to the MBA. “[Wells Fargo] is seeing a lot of strong refinance application activity, and a lot of that is coming from the jumbo sector,” Mr. Blackwell says.