Homeowners still face affordability challenges

by MPA06 Feb 2015
By Meghan de St. Aubin

Many homeowners are still facing challenges even as the housing recovery is in full swing.

Two reports were released this week from Realty Trac and Down Payment Resource analyzed the availability of down payment programs across the nation and reported that 87% U.S. homes qualify for down payment assistance.

RealtyTrac and DownPayment Resource both examined the number of single family homes, condos and townhomes that would qualify for down payment assistance programs in the 578 U.S. counties with a population of 100,000 based on the maximum home price allowed for the programs available in each county, according to the Mortgage Bankers Association. They reported that 58 million properties in the 578 counties would qualify for at least one program.

President and CEO of Down Payment Resource, Rob Chrane, said there was a lack of first-time homebuyers, mainly millennials, in the housing market because many face the issue of coming up with enough cash to make a down payment and afford closing costs.

Chrane said that many millennials are not buying homes because they aren’t educated enough in the process and feel pessimistic about qualifying for a mortgage.

“It’s important for buyers to research down payment programs as part of their loan shopping process,” Chrane said.

According to the National Association of Realtors 2015 should see home sales grow from 4.9 million  units to 5.3 million, a nice increase. As well, NAR predicted that real estate values will increase 4%, about twice the current rate of inflation. If correct, that would mean more equity and increased buying power for millions of homeowners.

“Low interest rates, affordable home prices and solid job creation are contributing to a steady housing recovery,” adds David Crowe, chief economist with the National Association of Home Builders.

However, despite remarkably-low interest levels existing home sales in 2014 fell. Worse, sales to first-time buyers are at their lowest levels in nearly three decades, meaning that existing owners cannot move-up or move out without replacement owners to take their place.
The central problem is not interest rates (around 4% at year end) or home prices (still 19% below August 2006 when values were at their peak, according to RealtyTrac. Instead, the issue is affordability.

Read: Is homeownership now beyond reach?

Name one thing today which is cheaper than in 1999 and then consider this reality: Household incomes today are lower than 15 years ago, according to the U.S. Census Bureau.

A recent Interest.com survey showed a median-income household can only afford a median-priced home in 10 of the 25 largest U.S. metropolitan areas. "Low mortgage rates are helping home affordability to some extent, but the key ingredient -- which has been missing to this point -- is substantial income growth," said Mike Sante, managing editor of Interest.com. "Millennials, in particular, are struggling to overcome their student loans and save enough money for a down payment."

Across the nation, rising home prices and stagnant wages have cemented a system where more and more household disposable income is going to housing, something that is unsustainable. Since 1975 (earliest data available), home prices (green) and inflation (red), have continued to skyrocket, while real wage growth (blue), has remained mostly stagnant, according to data from the St. Louis Federal Reserve.

RealtyTrac recently found 98 major U.S. counties where affordability is falling and buyers are being frozen out of the marketplace, areas with a combined population of nearly 62 million people. The counties with falling affordability include Los Angeles County, Calif., Harris County, Texas in the Houston metro area, Orange County, Calif., in the Los Angeles metro area, Kings County (Brooklyn), N.Y., Dallas County, Texas, Bexar County, Texas in the San Antonio metro area, Alameda County, Calif., in the San Francisco metro area, Middlesex County, Mass., in the Boston metro area, Oakland County, Mich., in the Detroit metro area and Travis County, Texas, in the Austin metro area.

Of the 475 counties reviewed, “one in five markets have now exceeded their historical affordability norms, which is a strong sign that either a new home price bubble is forming in those markets or that home price appreciation will soon plateau until incomes can catch up,” said Daren Blomquist, vice president at RealtyTrac.


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