The Affordability Wall Conversation Continues
It's The Down Payment We Need To Worry About
By Nicole Rueth - January 2, 2021
Despite the pandemic, loss of jobs, political and social unrest, 2020 has seen an incredible surge in housing. The home became everything and everywhere to all of us. That hyper focus along with the Fed's monetary policy added fuel to a generational swell that was already in play before COVID-19 existed. Rates hit an all time low for the 16th time on December 24th, keeping mortgage purchase applications up over 26% and refinance applications up 124% from last year. Inventory continues to hit record lows as sellers are concerned about the transmission of COVID and builders struggle to recover from years of under production.
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2021 will be another strong year in housing as our economy re-boots as we go back to work, ballgames, restaurants and travel. GDP growth is expected to hit 3.5% and unemployment 6.2%. Housing prices are expected to climb 8% while rates start inching up to 3%. Employers will also start calling their employees back as the percent of workers working from home drops from 21% in 2020 to 18% in 2021 and 12% in 2022.
So... where will these workers call home? Are you setting them up for success given what we know today? The conversation of the Affordability Wall continues to grab headlines; but for today.. we are able to hold it at bay. But that will not last. Not with home prices continuing to rise with multiple offers and rates eventually going up. Of course there is a lot that goes into this conversation.. will builders start to create enough inventory? will higher prices start to wane demand? will higher rates cause rate lock keeping even more sellers from selling or trigger lender compression holding rates down longer? I can't help myself but geek out on these what ifs. But for today... here is one thing I know for sure.. rates WILL eventually go up. And the likelihood of prices going down is extremely minimal due to housing's lack of supply.
Today, affordability looks great. Wages for those who are working remains strong and rates are just over 1% lower than they were a year ago. Looking at the chart below DMAR's median home price a year ago at 3.72% rate has a payment $39 or 2% higher than today's home which is priced $49,000 more.
But if this rate of appreciation continues AND rates go up.. affordability will loose it's edge and first time homebuyers will feel the most pain. Even if rates stay low a little while longer, higher home prices come with higher down payments. And the current struggles to get down payment assistance or FHA buyers under contract will only get harder.
Our job is to be the messenger, to get creative, and to ensure every first time homebuyer we can help is given the chance to begin building their wealth. Make 2021 the year of the first time home buyer before rates and higher down payments create an affordability wall worth talking about.