Are GSE offerings having an impact on housing affordability?

Recent years have seen measures aimed at helping new buyers enter the market

Are GSE offerings having an impact on housing affordability?

Rising home prices and bidding wars may be weighing against many first-time homebuyers’ ability to enter the housing market, but newer buyers are still finding plenty of ways to purchase.

Chief among those have been programs put forth by government sponsored entities (GSEs) Fannie Mae and Freddie Mac in recent years aimed at helping first-time buyers gain downpayment assistance and ease their path to homeownership.

Hanh Dao (pictured), a loan originator with Lock It Lending based in Texas, told Mortgage Professional America that those programs had been a sure-fire hit for many new entrants to the market.

“I feel like the agencies, Fannie and Freddie, are really helping first-time homebuyers right now in the market,” she said. “I’m seeing the change it’s been in the market. So I do have a big amount of hope.

“I do have a big amount of first-time homebuyers. I think the agencies are doing something good and correct – [which is] encouraging for first-time homebuyers.”

Among the measures unveiled by the GSEs in recent years has been Freddie Mac’s BorrowSmart program, a vehicle that allows borrowers to receive up to $2,500 toward their downpayment or closing costs depending on their qualifying income based on the county area median income (AMI). Dao said it had received a hugely positive reception from many first-time purchasers.

Fannie Mae, meanwhile, has beefed up its special purpose credit programs (SPCPs) to help buyers, with some now eligible for up to $6,000 off a downpayment entailing $5,000 for a grant, $500 for an appraisal credit and $500 for a home warranty credit.

“That’s only for first-time homebuyers – so I think that also has encouraged [them] to buy,” Dao said.

Efforts to improve affordability finding favor with first-time buyers

Throughout 2023, the GSEs introduced changes to loan-level price (LLP) adjustments fees, seeing rates drop for homebuyers with a downpayment below 5% regardless of their credit score.

 The frenzied bidding wars of the COVID-19 pandemic meant many first-time homebuyers were completely frozen out of the market – but while a pronounced cooldown took effect as soon as the Federal Reserve began hiking interest rates, there’s still plenty of competition in Dao’s local market at present.

That means new buyers still often have to contend with competing offers even despite a slower overall market than during the height of the pandemic-era housing boom.

“Last year – six, seven to 12 months ago – people were shocked. They were not buying,” Dao said. “I guess they were waiting for the dip in the market. They were pausing and waiting for the dip – but they didn’t see it coming.

“They saw how much the rates are still going up, the Fed is still increasing rates but the price is still going up or stabilizing… so I think because of that, there’s still lots of demand and because of that, there are bidding wars right now more than six months ago.”

How optimistic are first-time buyers about the current market outlook?

The good news for the mortgage and housing markets is that first-time homebuyers appear largely unperturbed by the current outlook, with a recent survey by TD Bank showing new entrants remain optimistic on the whole about their purchasing prospects.

That report drew from a survey of 1,009 Americans intending to purchase their first home in the year ahead and found that 74% of respondents felt positive about their prospects of entering the market.

Almost all (97%) of those surveyed, the report said, had already taken initial steps toward homeownership – with 78% saying they had a stable enough financial situation to purchase a home and 40% believing the current market represents a good time to buy.

Meanwhile, the first-time homebuyer share of the national mortgage market appears to be on the rise. In its 2023 Profile of Home Buyers & Sellers, the National Association of Realtors (NAR) noted that first-time buyers accounted for 32% of the market in that year, an increased from 26% in 2022.

The majority of that cohort (59%) were married couples, with single females outpacing single males (19% to 10%) in property purchases and 9% of buying made by unmarried couples.

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