Housing Market Sees Surge of ‘Wait-and-See’ Home Buyers
Last month, contract signings fell to their lowest level on record as the housing market continued to struggle through a sluggish summer. According to the National Association of REALTORS®’ latest Pending Home Sales Index—a forward-looking measure based on contract signings—there was a 5.5% decline in July and an 8.5% drop compared to the previous year. Lawrence Yun, NAR’s chief economist, commented, “A sales rebound did not materialize in midsummer. Despite job growth and increased inventory, these factors were insufficient to overcome affordability issues and some degree of hesitation related to the upcoming U.S. presidential election.” Some potential home buyers might also be holding out for a decrease in mortgage rates. Federal Reserve Chair Jerome Powell recently indicated that “the time has come for policy to adjust,” suggesting a likely interest rate cut at the Fed’s mid-September meeting. Although the Fed’s rate does not directly set mortgage rates, it can influence them, though the extent is debatable among economists. Home buyers might choose to wait until fall to see if any potential rate cuts could enhance housing affordability. Nirvan Ghosh, portfolio manager at The Palisades Group, predicts that the Fed could implement at least four rate cuts by the end of the year, which might lower mortgage rates from their current mid-6% averages. Additionally, buyers could have more options as inventory levels increased by 20% in July compared to a year ago, according to NAR. Ghosh notes, “We expect that any decrease in mortgage rates will continue to put upward pressure on housing prices due to pent-up demand from prospective buyers, likely outweighing any increase in supply.”
UWM's Zero-Down Loans Gain Buyer Favor but Raise Concerns Among Consumer Advocates
UWM's zero-down loan initiative garners buyer interest but raises concerns among consumer advocates. In contrast to the lax underwriting standards of subprime loans prior to the 2007 housing crash, these new loans adhere to strict criteria set by Freddie Mac. According to CNN, United Wholesale Mortgage (UWM) introduced its "0% Down Purchase" program last month, proving popular among homebuyers. However, some consumer advocates fear that borrowers could quickly find themselves owing more than their homes are worth if property values decline. Under this program, borrowers earning less than 80 percent of the area median income can secure a Freddie Mac Home Possible loan covering 97 percent of the home's value, with UWM providing a second mortgage for the remaining 3 percent, capped at $15,000. Although the second loan accrues no interest and requires no monthly payments, repayment is mandatory upon home sale or refinancing. UWM CEO Mat Ishbia hailed the program's potential to revolutionize home purchasing, highlighting its removal of the downpayment obstacle for thousands of prospective buyers. However, critics caution that borrowers with minimal equity are at greater risk of foreclosure if forced to sell prematurely. Better Markets CEO Dennis Kelleher likened these loans to "ticking time bombs" akin to subprime mortgages. Despite objections from UWM, comparisons to subprime lending persist. Nevertheless, unlike pre-crash subprime loans, UWM's zero-down loans must meet stringent Freddie Mac standards. Similar low-down payment programs exist, such as Freddie Mac's Home Possible and Fannie Mae's Home Ready initiatives, allowing borrowers to put down as little as 3 percent. UWM, Rocket Mortgage, and Zillow have expanded accessibility by offering grants to eligible borrowers, reducing the required down payment to as little as 1 percent. Demand for these zero-down loans has been substantial, with UWM already processing thousands of loan applications, according to Alex Elezaj, UWM's chief strategy officer. Additionally, various down payment assistance programs and Special Purpose Credit Programs (SPCPs) aim to assist underserved borrowers in securing homeownership. Bank of America, for example, offers a zero down payment, zero closing cost mortgage for first-time homebuyers in designated markets as part of its Community Homeownership Commitment.
The Perks of Buying over Renting
Thinking about buying a home? While today’s mortgage rates might seem a bit intimidating, here are two solid reasons why, if you’re ready and able, it could still be a smart move to get your own place. 1. Home Values Typically Go Up Over Time There’s been some confusion over the past year or so about which way home prices are headed. Make no mistake, nationally they’re still going up. In fact, over the long-term, home prices almost always go up (see graph below): Using data from the Federal Reserve (the Fed), you can see the overall trend is home prices have climbed steadily for the past 60 years. There was an exception during the 2008 housing crash when prices didn't follow the normal pattern, but generally, home values kept rising. This is a big reason why buying a home can be better than renting. As prices go up and you pay down your mortgage, you build equity. Over time, this growing equity can really increase your net worth. The Urban Institute says: “Homeownership is critical for wealth building and financial stability.” 2. Rent Keeps Rising in the Long Run Here’s another reason you may want to think about buying a home instead of renting – rent just keeps going up over the years. Sure, it might be cheaper to rent right now in some areas, but every time you renew your lease or sign a new one, you’re likely to feel the squeeze of your rent getting higher. According to data from iProperty Management, rent has been going up pretty consistently for the last 60 years, too (see graph below): So how do you escape the cycle of rising rents? Buying a home with a fixed-rate mortgage helps you stabilize your housing costs and say goodbye to those annoying rent increases. That kind of stability is a big deal. Your housing payments are like an investment, and you've got a decision to make. Do you want to invest in yourself or keep paying your landlord? When you own your home, you're investing in your own future. And even when renting is cheaper, that money you pay every month is gone for good. As Dr. Jessica Lautz, Deputy Chief Economist and VP of Research at the National Association of Realtors (NAR), says: “If a homebuyer is financially stable, able to manage monthly mortgage costs and can handle the associated household maintenance expenses, then it makes sense to purchase a home.” Bottom Line If you're tired of your rent going up and want to explore the many benefits of homeownership, let’s talk to explore your options.
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