Young Home Buyers Facing Affordability Crisis

Blog posted On July 10, 2018

Home price appreciation is impacting summer selling season, especially for first-time home buyers.  New research from Freddie Mac shows young adults aged 24-35 are hit hardest by affordability constraints. The homeownership rate for this age group has fallen 8% since peaking in 2004.  Based on the survey, 700,000 young adults who did not purchase a home between 2000 and 2016 cited affordability as the main reason. 

According to Freddie Mac’s chief economist, Sam Khater, although mortgage rates have stayed historically low and the job market is favorable, “home price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear.” 

One of the causes of climbing home prices is lack of homes for sale.  Limited for-sale inventory is leading to sustained home price appreciation in many metros around the country.  On one hand rising home values benefit homeowners who are building home equity.  But on the other side, would-be home buyers are finding themselves priced out of homeownership.  As home prices go up, so do down payment requirements.  However, low down payment mortgage loans are becoming more popular.  Last week, the Mortgage Bankers Association (MBA) saw an increase in government-sponsored mortgage loans, like the FHA Loan, a popular option for first-time home buyers because of its low down payment requirements.  Even some conventional mortgages have low down payment options, like Fannie Mae’s HomeReady® program, designed to help first-time home buyers.  As construction activity picks up, some areas may start to see a relief in home price appreciation.

From the fourth quarter of 2017 to the first quarter of 2018, Zillow found a 1.2% gain in the share of income needed to afford a monthly mortgage payment.  Currently, US homeowners are spending 17.1% of their income on mortgage payments, the largest share since 2009.  Compared with renting however, owning a home is significantly more affordable.  Zillow reports, as of the second quarter of 2015, the average renter is paying 29.7% of their total income toward rent.  In almost every region nationwide, owning a home is the more affordable option than long-term renting.  The biggest obstacle is saving for the initial down payment.  With numerous low down payment mortgage options and over 2,400 down payment assistance programs available, renters interested in transitioning into homeownership should consult a mortgage loan officer to find out about these options. 

With young people delaying homeownership, lenders are looking for creative ways to make it more affordable for renters to enter the housing market.  HomeFundItTM, the down payment crowdfunding platform by CMG Financial, is one way for home buyers to use gifts from family and friends for the down payment on a home.  Previously, giving someone money toward their down payment required extensive documentation and was an invasive process.  HomeFundIt allows anyone can give, any amount, and all gifts are documented digitally through the platform.  All gifts are safely stored in escrow, until the home buyer is ready to purchase the home. 

A home is the first appreciating asset most Americans will own and the first step toward wealth-building.  Working with an informed mortgage lender is the best way to find out how you can afford homeownership. 


Sources: HousingWire, MarketWatch, Zillow