By CHUCK GREEN
Despite a plethora of obstacles, there are prospective buyers chomping at the bit to purchase a home, according to experts.
On Wednesday, Zillow Home Loans Senior Economist Matthew Speakman released a statement on mortgage rates dropping after a report on inflation showed that price pressures may finally be easing.
“The arrival of weaker-than-expected October Consumer Price Index data was just the sign investors had been waiting for, and markets viewed it as a signal that the Federal Reserve may finally take its foot off the brakes as it determines the path forward for monetary policy,” Speakman said.
“Bond yields tumbled as a result and mortgage rates – which had spent the last few weeks oscillating at or near twenty-year highs – fell by more in one day than they have in at least a decade, and likely a lot longer. The sharp decline was welcome news for first-time buyers waiting for a more affordable entry point as well as those eager to move and buy their next home.”
Speakman said more signals of waning inflation pressures would almost certainly usher in additional rate declines.
The adjusted Market Composite Index, a measure of mortgage loan application volume, increased by 2.7%.
The 30-year fixed rate once again fell below 7%, propelling potential buyers into action. Rates have been going back and forth between the high 6.90s and low 7s for several weeks. This drop from 7.14% to 6.90% is the largest single-week decline since July 2022.
Nicole Bachaud, senior economist at Zillow, spoke last month at the National Association of Real Estate Editors conference in Atlanta, Georgia.
“We’re certainly seeing home buying demand pull back but it’s important not to confuse the inability to buy a home with a lack of desire to buy. Long-term interest in homeownership from Millennials and Gen Z behind them hasn’t gone anywhere,” Bachaud said.
Added Bauchaud: “Affordability’s clearly the biggest obstacle for today’s home buyers. Record home value growth already made down payments a stretch for first-time home buyers especially, and higher mortgage rates now mean monthly payments are unaffordable as well.”
Bauchaud pointed out the correlation between mortgage rates dropping and an instant uptick in home sales.
Even as recently as August, “we saw a surprising spike in home sales after mortgage rates briefly dipped below 5%. This is a sign that demand is there, it’s just being pushed to the sidelines because the cost of entry is so high.”
Robert Johnson, a professor of finance at Creighton University’s Heider College of Business in Omaha, Nebraska, said in an interview with The Mortgage Note that it is an unusual market because of high housing prices coupled with high-interest rates.
“The biggest financial obstacle right now is simply how expensive homes are,” Johnson said. “The asking prices for homes has not declined significantly, nor has inventory increased despite the slowing of the market.”
Johnson noted that a high-interest rate environment isn’t necessarily a bad time to buy a home.
“In fact, it can be an ideal time if home prices are depressed due to weakened demand from higher rates. I often tell people that you can renegotiate the interest rate on your loan (by refinancing), but you can’t renegotiate your purchase price,” Johnson said.
Johnson said patience is a virtue in this market.
“I’d advise home buyers to ‘keep their powder dry,’ and wait for the market to moderate,” he said. “That is, an extended period of high-interest rates will force both current sellers to lower their asking prices as well as result in home sellers that are currently on the sidelines to lower their expectations and list their home.”
Johnson said despite conventional wisdom suggesting the contrary, home ownership is not a very effective way to accumulate long-term wealth.
“Many people continue to believe the myth that residential real estate is the best long-term investment, and the evidence simply suggests otherwise. People fall prey to the stories of individuals realizing substantial gains by buying a home and selling it at a much higher price years down the road. The fact that in the United States a large percentage of an individual’s net worth is concentrated in home equity adds to the mistaken belief,” he said.
In fact, homeownership can have deleterious effects on building wealth.
“People often ask mortgage bankers how big a mortgage they can qualify for and anchor their home buying decision on houses at the top of their range. The problem that people get into is that too large a portion of their monthly income is consumed by mortgage payments, effectively crowding out other, more lucrative investments — like building wealth in the stock market,” Johnson said.
What does this mean for the American dream?
“The American dream has always been homeownership, hence, the status of the market is not a determining factor for the public,” Linda Weppner, broker/owner, Century 21 Bell Real Estate in Cheyenne, WY, told The Mortgage Note. “The resiliency of this American ideal is prevalent as the public determines their lives’ worth, personal preference, and family ideals and make investments accordingly.”
Weppner said the cost of houses and interest rates are easily mitigated by having educated buyers.
“Buyers who understand that they need to get into the market by lowering some expectations and creating personal wealth by investing in themselves. Once they understand that they are making a house payment for someone else when they are a renter, the fear’s dissipated,” Weppner said.
Weppner said this is the third economic correction cycle she has encountered as a seasoned real estate broker.
“The rebalancing will provide stability and sustainability for the long term. It has in the past and will again in the future. History merely repeats itself,“ Weppner said.
For people looking to get into the market, there are some programs designed to make it easier for them.
There are more than 2,000 homeownership programs available in the United States and over 38% of them are for repeat homebuyers.
Rob Chrane, founder and CEO of Down Payment Resource, said across the MLS markets they have information for, about 70% of for-sale listings are eligible for one or more down payment assistance programs.
“The majority of homebuyers, or especially first-time homebuyers, just don’t know that this exists. If a consumer doesn’t know, then it’s kind of up to their real estate agent or their lender to tell them about it, but not every lender works with these programs, and not every real estate agent knows about them,” Chrane said.
Chrane said depending on the market, 60% to 70% of FHA borrowers are eligible for programs, and only 15% of borrowers use them.
Lenders are looking for ways to make the home-buying process more accessible for potential customers.
Some mortgage companies are offering no down payment, no closing cost options to potential homebuyers.
In August, Bank of America introduced zero down payment, zero closing cost mortgages for first-time homebuyers in underserved communities.
Leaders at Lenders One Cooperative are planning to open branch locations at select Walmart stores in seven states.
President Justin Demola said in a recent interview with The Mortgage Note that opening branches inside Walmart stores makes sense for their members and customers who will have access to lending services in the same place they shop.
Editor Kimberley Haas contributed to this article.
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