When was the last time anyone used the term "elderly"? I think the industry dropped the term when someone realized baby boomers didn't like thinking of themselves that way. (And no jokes about the average age of LOs!) Although I was kidding with the headline, the residential industry is definitely focused on the other end of the generation teeter-totter in terms of recruiting and lending. It is better for Millennials to buy than to rent. The catch: Millennials like the urban environment and in the hot markets like San Francisco and New York, they are priced out of the market. Not all urban areas are bad, however - take a look at Houston, Syracuse, and Baton Rouge. Are the builders responding? Or can they, given land, labor, and materials shortages? More below.

I don't remember the last time I went to a conference that didn't have some kind of break-out session on how to either hire, retain, or market to people aged 15-33. How long will everyone take to realize that Millennials - per our Census Bureau those born between 1982 and 2000 - are in no hurry to marry, have kids, or save up enough money and then finance a house? It will happen eventually. Still it doesn't stop the fascination with their every move but the ones that I talk to aren't too excited about constantly being under the microscope.

The rental market has been on fire, and has been doing much better than the single family construction market. Is that about to change? As the Millennials age, they will become house buyers. The demographics are changing, and 2015 may be the known as "peak rentals" The one thing our economy needs more than anything right now is more housing construction. We have a shortage, and housing construction employs a lot of people with jobs that pay good wages. The difference between 1.2 million housing starts and 2 million in terms of growth is very meaningful.

But in New York some officials are promoting the building of "micro-apartments" due to the large number of singles and expense of real estate.

Bloomberg recently published an article of the most popular metro areas that Millennials are migrating to: the top ten cities where Millennials made up the highest share of first time home buyers include Des Moines, IA, Provo, UT, Baton Rouge, LA, Grand Rapid, MI, Madison, WI, Clarksville, TN, New Orleans, LA and Shreveport, LA. The affordability of these cities is attracting Millennials. For example, 60 percent of borrowers who used a mortgage to buy a home in Des Moines in the first quarter of the year were between 25 and 34 years old. This is greater than the national average of 37 percent, making Des Moines the most millennial-friendly city. The share of millennial buyers is also up from last year, mainly due to an increase in wage growth, allowing more young adults to afford a home.

For young adults looking to purchase a home for the first time, the Bank of Mom and Dad has grown increasingly more important, as many first time homebuyers look to their parents for down payment assistance. The share of first time buyers needing assistance from their parents has increased over the past few years due to the rise in home values, slow income growth and tight credit standards and the Survey of Household Economic and Decisionmaking (SHED) upholds this idea. The SHED asked homeowners to identify the sources of funds used for their down payment when they purchased a home and found that the use of loans and gifts from family and friends increased from 8 percent in 2007 to 21 percent in 2009, but has dropped to 13 percent in 2014. Down payment assistance was almost more prevalent among those falling into the "other, non-Hispanic" racial category at 23 percent (presumably mostly Asians), followed by Hispanics at 17 percent, White, non-Hispanic at 15 percent and finally Black, non-Hispanic at 7 percent. Those in the middle income quintile received more support to help fund their down payment (25 percent) compared to 15 percent for the lowest income quintiles and 16 percent for the highest.

Plenty of young folks are first-time home buyers. The CFPB has published new tools for consumers looking to own a home. The "Owning a Home" online toolkit was first launched at the beginning of the year, but recent enhancements have been made. The online guide is intended to "help potential homebuyers understand loan options, explore interest rates, understand and more easily compare mortgage loan officers and prepare for closing."

A new Harvard study points out how the rent vs buy decision is becoming even more skewed towards buying as rental inflation continues to increase. The number of US households that spend at least half their income on rent could increase 25% to almost 15 million over the next decade. Note that the homebuilders are pretty much all venturing into multi-family housing as well as single family, which should alleviate this problem at least to some extent. We have had a production deficit for single and multi-fam construction for several years, prices keep rising, and yet housing starts remain at about 75% of normal levels (ignoring the boom and bust years).

Some builders have a reputation of catering to first-time home buyers. The National Association of Home Builders/Wells Fargo Housing Market Index increased one point to "61" in August and has since moved to "64" in October, reaching the highest level since 2005. The rise is indicative of an increase in builders' confidence and prospective buyers' traffic reached its highest level of the year. The upward trend in home builder confidence indicates that single-family housing starts are expected to strengthen during the remainder of the year and into next year. In September home builders reported optimism regarding the overall market, despite a small decline in future sales, which is mainly due to uncertainty over the overall global economy and anticipation of the federal rate hike.

We have tremendous pent-up demand for homes and the inventory of homes for sale is very light. So why aren't we seeing more homebuilding? In some areas raw land is lacking, and part of the problem is a shortage of labor. Heck, California has cut building permits due to a lack of water. Many of the construction workers from the housing boom have left to new industries (mainly energy), aged out of the workforce, or left the country. 22% of construction workers are foreign, and the NAHB is asking for a temporary guest worker program to fill demand for workers. Right now, the builders are stealing skilled workers from each other using higher pay as an incentive to move.

Zelman and Associates is good at taking a look at land development and home building by doing monthly surveys. It's recent Land Development Survey indicating that land market remains supportive of homebuilder growth plans. Lot supply is expected to increase as development activity continues to inch higher in the third quarter of the year, reaching 63.4 up from 63 a year earlier. Finished lot supply has been on the decline and survey respondents expect an increase in supply (4%) throughout the next year. Finished lot prices rose 2 percent sequentially in the third quarter and lot prices were up 10 percent YoY. Builders' future gross margins are expected to gain momentum due to a greater increase in home prices, more so than originally expected and decelerating finish lot price increases. Acquisition demand index inched up for the second consecutive quarter and demand moved higher in the third quarter and is now ahead of last year's level of activity.

Going back a ways, its April Homebuilding Survey showed price and volume trends maintain a solid course. Order growth remained at 25 percent and more than a 20 percent growth rate is expected throughout the rest of the year. Order prices are up 4.6 percent and incentives reached the lowest level in 8 months. In June it showed that pricing power has accelerated but order growth has slightly declined. Order growth dropped to 20 percent from 25 percent in the prior three months mainly due to fewer weekend days. Net order prices increased 5 percent in June, up 40 basis points from May. The majority of survey respondents reported a YoY improvement in margins and a positive outlook for the second half of the year.

The following month Zelman & Associates published results of its July Homebuilding Survey, highlighting order growth that remained at 20 percent and resulting in a year-to-date growth to 26 percent. Net order prices increased 5.5 percent YoY with builder margins improving 80 basis points sequentially to 23 percent during the second quarter. Roughly 20 percent of respondents did report that they were intentionally slowing sales through price increases or limited lot releases. Home building stocks were up 3 percent and YoY price gains increased for the eighth consecutive month due to low inventory, household formation growth and strong job gains.

In August Zelman & Associates told us that its Survey showed order activity was slightly ahead of what was initially anticipated, whereas YoY growth is 500 basis points below July's level. Orders were up 18 percent during the first two months of the third quarter and 30 percent of contacts reported raising net order prices compared to 10 percent that lowered net pricing. Net order prices for August increased 5.8 percent YoY, up 30 basis points from July and 21 percent of respondents experienced better than expected traffic and 55 percent said traffic results were consistent with internal expectations. To learn more about the Preliminary Homebuilding Survey, contact Ivy at ivy@zelmanassociates. com.

Even earlier in the year the trends were present. Remember the headline, "Home Builders Say Loans Are No Longer Scarce"?  Many factors, on the demand and supply sides, continue to hinder the home-construction market in the U.S. from returning to normal. But, several home builders say, the availability of construction loans no longer is one of them.  Indeed, lenders are opening the spigot at a steady, albeit moderate, pace for commercial and residential construction alike, which bodes well for output in those industries. That, in turn, stands to benefit the U.S. economy, given that rising construction spending contributes greatly to gross domestic product.  "For residential-construction loans, this is the fifth consecutive quarter of year-over-year growth in the range of 16% to 17.5%," said Robert Dietz, a senior economist with the National Association of Home Builders. "Ongoing growth in residential construction loans points to additional expansion for single-family (construction) starts."

There just isn't much to note in the bond markets, and rates aren't doing a whole heckuva lot. Experts were saying, "Let's see what happens with the Federal Open Market Committee's policy decision on Wednesday." That being said, at some point oil will grab the headlines again. Crude prices went below the $44.00/barrel mark and settling down 1.4% at $43.98/bbl.

Today we've had a little more news. House and Senate leaders, along with the White House, have struck a tentative two-year budget deal (through Sept '17) that would also raise the debt ceiling until Mar 2017 (technically the debt ceiling would be "suspended" until '17 by which time a new president will have taken office).

September Durable Orders (always volatile given that one big airplane order can throw things off) was -1.2%, about as expected. If you care about numbers from a few months ago the August Case-Shiller Home Price Index is also due out, and we'll also see October's Consumer Confidence report. Anyone trying to guess at rate sheets for today should know that yesterday we closed the 10-year at 2.06% and this morning we're at 2.03% and agency MBS prices are better by .125.

Jobs and Announcements

In job news Debbie Isaacs and Eva Gerrard joined Colorado's Catalyst Lending and are opening Utah branches. Eva Gerrard joined Catalyst Lending as Area Manager for the Salt Lake City office. Debbie, Utah Regional Manager, is opening the first branch in Orem with a Salt Lake City branch opening soon. Debbie has over 30 years of leadership experience in the mortgage industry. When introducing Debbie, Kevin Yamane, President and COO of Catalyst Lending said, "Debbie is an experienced, trusted and respected mortgage professional who exemplifies our culture of being a catalyst for positive change in every transaction with customers, peers and partners."  If you are interested in joining a team of expert, compassionate loan officers in Utah contact Debbie Isaacs (801.368.6519), or for other Catalyst opportunities Kevin Yamane  (720.440.6666). We are collaborative, friendly and fun to work with - taking the stress out of some of life's biggest milestones. Home loans are daunting. We believe the process doesn't have to be. 

And Frost Mortgage is expanding in Southern California and is seeking Branch Partners, especially in the San Diego area. Frost's entrepreneurial operating platform and revenue sharing business model is worth your serious evaluation. Click here to schedule a confidential interview with Greg Frost.