I’m a father of two young kids – ages ten and seven.  There are days lately where I wonder what the homebuying experience will be like for them.  Despite having had the lowest mortgage interest rates in US history during the past few years, it’s a tough pill to swallow that the biggest challenge in housing today is affordability.

Intro:  Just a quick reminder:  These articles I share here are researched and written by me!  As part of my commitment to ongoing support for my clients and partners, I write these articles to help them understand what’s really happening in the markets, beyond the headlines and soundbites.

Price growth

It’s easy to look at the post-COVID housing market and conclude that price growth has been out of control.  But the truth is that home price growth had already taken off long before the government’s COVID monetary policy wreaked havoc on the housing market.   (Remember:  How the Government Broke the Housing Market, part I and part II)

As far back as 2018, housing bears were saying that home prices were inflated, and a price crash was imminent.  In 2019, I had clients telling me that they were putting their homebuying plans on hold, because they thought prices had risen out of control and would be falling in the next year or so.

Spoiler alert:  Prices kept climbing and haven’t stopped.  

In fact, now, after 12+ months of interest rates above 6%, the same underlying challenge exists within the housing market:  Lack of inventory.

And if a lack of inventory persists, it will be very difficult for there to be a scenario in which home values decline significantly. 

What’s this mean for today’s homebuyers?

It’s the elephant in the room – housing affordability has cratered.  To address that, many lenders and third parties have begun to offer solutions to help buyers address this.

DPA:  Some lenders work with third-party organizations that provide Down Payment Assistance (DPA).  Eligible buyers receive funds or grants from government or nonprofit organizations.  These funds help to minimize the amount of the initial investment by the buyer.  In many cases, the DPA funds must be repaid eventually, though in some cases, the assistance amount is forgiven over time.

Temporary Rate Buy Down:  Another solution to the affordability challenge today is a Temporary Rate Buy Down.  A temporary 2-1 rate buydown, for example, is a mortgage financing strategy where, in exchange for an up-front premium, the interest rate is reduced for the first year, typically by 2%, and then increases incrementally afterward. The up-front premium can be paid by the buyer or the seller.  This helps borrowers afford initial payments, making homeownership feasible, especially if they anticipate higher income – or the ability to refinance to a lower rate — in the future.

1% Down:  Some lenders themselves are making direct efforts to help make homes more affordable for more Americans.  One of our primary partners, United Wholesale Mortgage (UWM), has rolled out a program in which a new buyers’ down payment can be as low as 1%, with an additional 2% contributed directly by UWM itself. 

With all these special incentives and programs, buyers must meet qualification standards, which can vary from one program or lender to the next.

The housing landscape in this country is changing, and one of the clear trends has been the straining affordability of homeownership.  Thankfully, lenders, organizations, and other institutions have stepped up with creative ways to assist buyers in these times.    

If you found this interesting or helpful, please feel free to share it with a friend, family member, or co-worker – it’s my goal to educate and empower as many people as possible during this incredibly unique time in housing!

Here is how I can help!

• If you are looking to purchase a new home or have questions about the market, getting preapproved, etc., or
• If you are a Realtor or a Broker looking for a lender with great financing solutions to help educate your clients on the state of the market to help them feel good about their decisions,

Please call today – I am happy to help however I can!  Have a fantastic week ahead!