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January 2015
The Buzz
Young Home Buyers Return To The Market

Young Home Buyers Return to U.S. as Economy Enlarges


Confidence Grows

The Thomson Reuters/University of Michigan consumer sentiment poll showed last month that consumers expect an increase of 1.7 percent in their incomes in 2015, the highest since 2008. Those under 45-years-old expect the biggest gain, at 4.7 percent.

"Young renters have wanted to keep their living situations flexible because they didn't know if they were going to have to move for a job," Duncan said. "More of them are going to be willing to put down roots if they feel more confident in the labor market."

Economic growth, bolstered by consumer spending and business investment, is accelerating. The U.S. grew at a blistering pace of 5 percent in the third quarter, the fastest since 2003, the Commerce Department said at the end of December. The Fed said last month it expects the economy will expand between 2.6 percent and 3 percent in 2015, up from 2.3 percent to 2.4 percent in 2014.

The economy added more than 2.7 million jobs last year, the most since 1999, according to the Bureau of Labor Statistics. The jobless rate will average 5.2 percent to 5.3 percent, levels last seen before the financial crisis, according to the Fed.


Wages Accelerate

"With the labor market firming, wages are starting to accelerate," said Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago and chairwoman of the Securities Industry and Financial Markets Association's Economic Advisory Roundtable. "Companies are finding themselves having to compete for workers, and then compete to retain them."

The median household income in 2014 rose 1.6 percent to $53,880 through November, according to Sentier Research LLC. That pace should continue into 2015, said Swonk. For all of 2013, the gain was 0.1 percent.

"People who see their cash flow go up are going to feel a lot more confident about making a home purchase," Swonk said.

Young Americans are making more money as technology companies ratchet up spending and hire. Business investment in intellectual property, which includes software and computer programming, accounted for 0.34 percent of the economy in the third quarter, up from 0.11 percent in the year earlier period, according to inflation-adjusted data from the Bureau of Economic Analysis.


Home Sales

Sales of new and existing homes this year probably will gain 5.4 percent to 5.7 million after falling 2.7 percent in 2014, according to Fannie Mae's Duncan. Lending for home purchases probably will grow to $714 billion from $672 billion last year, he said.

Household formation, a key measure of real estate demand, will rise to 1.1 million in 2015, the highest in three years, according to a forecast by IHS Global Insight Inc. First-time buyers accounted for about 29 percent of home purchases last year, according to data through November from the National Association of Realtors.

"If the first-time buyers aren't in the market, the sellers can't move up and buy their next houses," said Bill Banfield, vice president of Quicken Loans Inc. in Detroit, the third-largest U.S. lender. "The real estate market needs an increase in entry-level demand" for it to be fully functioning, he said.

Ricardo Bonafe, 37, plans to buy his first home this year. He said he's in the final stages of the hiring process for a job as a correctional facilities officer. The pay will be better than his current job as a roofing contractor, and the work will be more reliable, said Bonafe, who lives on the northwest side of Chicago.


First-Time Buyer

"The last few years have been tough ones for me and my family, but it looks like things have finally started to turn around for us," said Bonafe, who lost an information technology position at a non-profit group four years ago.

Bonafe, his wife, Judy, and their two children have been living at a friend's house, paying rent as they save money for a down payment. The couple said they plan to start looking at properties priced at about $250,000 this month.

For Bonafe's 12-year-old daughter, Trinity, the real measure of the economy is whether she has to continue sharing space with her 10-year-old brother. If Bonafe's plans for the New Year materialize, she'll have a room of her own.

"I grew up in a home my family owned, here in Chicago, and I want to give them that same experience," Bonafe said.


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