Schulz says low unemployment masks how little financial cushion most homebuyers actually have
Despite many headwinds over the last two years, the economy seems to be plugging along. Unemployment remains low as a low-hire, low-fire environment continues.
However, there are still concerns lying under the surface. Inflation remains high, as the continued uncertainty of a settlement in the Middle East has the energy markets waiting for a conclusive sign.
The headwinds have pushed mortgage rates back into the mid-6s after a brief flirtation with the high-5s earlier this year. Household budgets have been strained both by inflationary factors and rising property taxes and home insurance.
Matt Schulz (pictured top), chief consumer finance analyst at LendingTree, said the stability is real, but the cushion underneath it is thin. Brokers closing loans today are closing them for people who, in many cases, cannot afford much to go wrong.
"I think people are generally doing okay, but it really wouldn't take all that much for them to be in a really dicey spot," Schulz told Mortgage Professional America. "Whether it's a job loss or income reduction, a medical emergency, things like that, an awful lot of Americans are one of those things away from being in a fairly precarious position."
A thin margin for homeowners
The evidence that keeps many people from seeing the vulnerability is the same evidence that makes the economy look healthy, Schulz said. Unemployment is low, and credit card delinquencies are rising, but not dramatically.
But delinquency data, he said, does not capture the full picture, and that’s harder for those looking in from the outside to quantify.
"Just because you aren't delinquent doesn't mean that you're paying nearly as much as you were before," he said. "That's just another potential sign where it looks like people are doing okay, but their margin for error is just really small."
The Federal Reserve's Survey of Household Economics and Decisionmaking last year found that more than half of US adults could not pay a $2,000 emergency bill from savings. A meaningful portion cannot even cover $400 without borrowing.
Two costs in particular carry an outsized psychological weight beyond the harder financial numbers, Schulz said.
"Gas prices and grocery prices have kind of an outsized impact on people's view of the economy and their own financial situation," he said. "And unfortunately, we've seen both of those rise a good bit recently. And that's not helping people feel much better."
What resilience looks like
The buyers still pursuing homeownership in this environment are not doing it easily, Schulz said. The ones making it work have accepted trade-offs, especially first-time homebuyers.
"For those people, they're having to make some sacrifices,” Schulz said. “They're having to kind of prioritize spending pretty ruthlessly. They're having to be flexible in maybe where they live. Because the truth is that if homeownership is one of your top priorities, there are plenty of ways to go about it. It's to a degree just a question of what sacrifices and how big sacrifices you're willing to make in pursuit of that goal."
Remote and hybrid work has made geographic flexibility more viable for some buyers than it was five years ago. For those who can move, lower-cost markets and lower-tax areas are becoming a more realistic option.
Property taxes are increasingly factoring into that calculation, Schulz said, a dynamic likely to intensify as more buyers discover how much the escrow portion of their payment can vary by location.
On the broader rate outlook, Schulz said the conditions for improvement are present, but the timeline is uncertain.
"It's just a really challenging time with a lot of unpredictability," he said. "And I think that unfortunately, that's something that is going to stick around for a while."
Schulz said the Iran conflict is a good example of why recovery rarely moves as fast as people hope. Even if Middle East peace were finalized tomorrow, it will take time for the economy to smooth out.
"It's not like tomorrow all of these economic issues would go away," he said. "It would certainly start to transition some things and maybe build some hope, but it wouldn't go from awful to awesome overnight, that's for sure."
For brokers, the most useful thing is not trying to predict the macro picture but helping clients understand what they can control, Schulz said. That includes helping buyers shop for the best rate and explaining how high-yield savings accounts can accelerate a down payment.
Making sure clients understand the full cost of what they are buying, including the escrow components that can change over time, is part of that work too.
"The message is still that even in all the uncertainty, there are things you can do to take a little bit of control," he said. "Controlling what you can control and doing what you can to improve your situation — and understanding that while a lot of macro issues are out of your hands, that doesn't mean that everything is."
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