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What do consumers need to know about today's housing market?

June 19, 2018

Despite the sometimes difficult buying conditions now widely acknowledged in the national housing market, there are many Americans who are still enthusiastic about making a home purchase. This may be particularly true when it comes to first-time buyers. However, it's important to note that many people may not really understand what they're getting into as they attempt to buy a home, and it's something that could hold them back from finding the success they may be seeking.

"46% didn't know all their down payment options."

Today, 53 percent of college-educated adults who plan to buy a home say that they're concerned about affordability given current market conditions, according to a new survey from Laurel Road. However, part of that issue may come because of misconceptions about what options may be available to them when it comes to making a down payment; 46 percent of respondents didn't know they may have more than one option to buy a home making a relatively small down payment, instead of the "standard" 20 percent.

A closer look
In fact, 35 percent of those polled said that they didn't think they could make a 20 percent down payment, and that was also true of nearly half of millennial homebuyers in particular, the survey found. Women, too, were nearly twice as likely than men to say they weren't confident they could afford a down payment that large, and 42 percent of people with outstanding student loan balances expressed such concerns.

Moreover, respondents seemed to be largely unaware of the ins and outs related to how interest rates work, the survey found. For instance, the average respondent said they felt that mortgage rates would probably hit 6 percent before the end of the year, well above most industry projections that place the average rate for the year closer to 4.6 percent. Among those watching out for rising mortgage rates, millennials were by far the most likely to be concerned, at 70 percent, versus 60 percent for Gen Xers and 35 percent for baby boomers.

Conversely, 78 percent of boomers think now is the best time to buy, versus 53 percent of millennials, who remain concerned about affordability, the survey found.

Well-founded concerns?
These issues are arising at a time of turmoil for some looking to make a home purchase, according to The Washington Post. Not only are prices and mortgage rates continuing to rise nationwide, but so too are additional costs that would have otherwise helped temper those increases. For instance, the federal government recently increased tariffs on certain types of building materials such as lumber, and that has made it difficult for builders to continue putting up lower-priced homes to alleviate the inventory constraints seen in many major markets.

The combination of declining affordability and tight inventories, in turn, seems to be having a negative impact on the pace of home sales nationwide, the report said.

"Home sales had been steadily improving slowly since the recession, and this year they've kind of gone sideways," Mark Zandi, chief economist for Moody's Analytics, told the Post.

Indeed, it's expected that the amount of construction seen across the country is going to come in well below the pace that was expected at the beginning of the year, and that could continue to squeeze buyers for some time to come, the report said. That could be especially true if current homeowners continue to be unswayed by rising home prices, and don't start putting their properties on the market in greater numbers.

Continuing to heat up?
Through the end of April, every state in the country saw median home prices rise at least somewhat year over year, but perhaps more concerning was that only about one-third of the 50 largest markets had home prices that were properly valued, potentially highlighting how difficult affordability has become in the nation's major cities, according to the latest CoreLogic Home Price Index.

"Home prices nationwide grew 6.9%."

From April 2017 to the same month this year, home prices nationwide grew 6.9 percent, and while that rate of increase is expected to slow over the next 12 months (to 5.3 percent), even that lower number is well above historical averages, the report said. Moreover, prices in April were up 1.2 percent from just the previous month, as the spring buying season got underway in earnest.

"The best antidote for rising home prices is additional supply," said Dr. Frank Nothaft, chief economist for CoreLogic. "New construction has failed to keep up with and meet new housing growth or replace existing inventory. More construction of for-sale and rental housing will alleviate housing cost pressures."

Consumers worried about affordability should try to keep in mind that with prices and rates both likely to keep rising over the rest of 2018 - and beyond - the best time to buy is right now. Locking in rates and prices today could help them save potentially tens of thousands of dollars over the lives of their mortgages.




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