Beyond California, payments have skyrocketed in two markets brokers won’t see coming
Affordability challenges have been a much-discussed topic, not just in the mortgage industry but across the financial landscape.
Those conversations are getting louder this week, as gas prices skyrocket in much of the US. Prices in Great Lakes states are approaching what has been the norm in places like California, with $5 per gallon gasoline showing up in states like Ohio and Michigan.
In the housing market, affordability in metro areas continues to be a problem. Despite a decline in the overall average mortgage payment in a new LendingTree report, 26 of the 100 largest metros saw payments increase.
Some of those increases were significant, and the two areas with the largest increases will likely surprise mortgage brokers.
Akron and Toledo, located in northern Ohio, saw the largest percentage increases of any metro in the nation. Akron’s average mortgage payments, which represent principal and interest only, rose 10.7% over last year, while Toledo increased 9.7%. They were followed by Augusta, Georgia (8.9%) and Charleston, South Carolina (6.7%).
Matt Schulz (pictured top), chief consumer finance analyst at LendingTree, said even though the Midwest has largely been home to affordable housing, decreasing inventory and rising mortgage rates are causing affordability challenges. This is especially true where wages aren’t keeping up with inflation.
“There are still plenty of places where costs are rising,” Schulz told Mortgage Professional America. “It is interesting to see, when you look at the list of places with the biggest increases, and it’s places like Akron and Toledo, Ohio. Those are very different parts of this country than San Jose and New York. In places where incomes aren’t necessarily rising through the roof, anytime you see these sorts of increases, it makes things challenging.”
Inflation causing more challenges
Affordability isn’t expected to get better immediately, either in the mortgage world or overall. Mortgage rates bounced back up this week to 6.3% according to Freddie Mac, although some sources reported rates as high as 6.5% following yesterday’s Fed meeting.
Three dissenters on the Fed board noted concerns with rising inflation, and Fed chair Jerome Powell addressed those concerns in his comments.
“Inflation has moved up and is elevated in part reflecting the recent increase in global energy prices,” Powell said. “Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook, and we will remain attentive to risks of both sides of our dual mandate. Inflation has moved up recently and is elevated relative to our two percent longer-run goal.
“Estimates based on the consumer price index and other data indicate that total PCE prices rose 3.5% over the twelve months ending in March, boosted by the significant rise in global oil prices that has resulted from the conflict in the Middle East.”
Some areas that have seen big mortgage payment increases in the past have also had corresponding wage increases to help soften the blow.
“I live in Austin, Texas, and Austin has famously boomed for decades,” Schulz said. “It has gotten to be, at least by Texas standards, pretty expensive for a housing market. But incomes have risen a lot here, too, but they’ve had to keep up with prices. So it’s good when things boom, but it certainly can present some challenges too.”
Advice for brokers working with buyers
For brokers who are on the front lines with homebuyers trying to navigate these challenges, Schulz encourages them to make sure customers understand that there are options out there for them if they’re willing to be a little more flexible.
“I always talk about how people have more power over their money than they think they do,” he said. “And just the importance of controlling what you can control. We can’t control what the Fed’s going to do or what rates are going to look like. You can’t necessarily change what the housing costs are in your ideal area. But if you could be flexible and look a little further out, or even maybe a different city if you can work remotely.”
Right now, anyone preparing to make a major purchase, like a home, is going to be anxious about the overall economic picture. But brokers can help them by guiding them with different options, whether it’s finding a better loan type or choosing an area farther from a city center.
“It’s easy to feel kind of helpless and powerless in this sort of thing,” Schulz said. “But if owning a home is one of the things that means a lot to you, there are adjustments that you can make that can make that more possible, if you’re willing to go there. You have to then factor in commutes and that sort of thing. But there are a million factors that go into finding the right house. It’s just a question of putting the puzzle together and seeing if you can find something that ultimately fits.”
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