As interest rates continue to push for higher ground, homeowner applications have hit a 28 eight year low. First-time homebuyers made up the smallest share of sales last year at 26%.
Extremely tight inventory combined with high interest rates mean that the rich, those with high-paying jobs, lots of money, or rich parents, are the only ones that can afford to buy: From Bloomberg:
The average rate for a 30-year, fixed mortgage climbed for a fourth straight week, reaching 6.65%, Freddie Mac data released Thursday show.
The difficulties for first-time buyers have been escalating for years. During the pandemic boom, they were frequently squeezed out as they competed against people with cash and investors who frequently target starter homes. The typical household income for first-time buyers soared to as much as $90,000 in 2022 from about $70,000 in 2019. -Bloomberg.
This is happening in Cape Charles, and all up and down the Shore. Real estate has severely shifted toward homebuyers with higher incomes, and the rich, those with perceived superior financial pedigree. Without more inventory, which seems doubtful, this trend will continue.
According to Zillow, with mortgage rates at 7%, it would take around 10 years for an individual saving 5% of the median household every month to set aside enough for a 10% down payment on a typical home. And banks may be asking for more than 10% in the near future.
The inventory of entry-level homes is very, very low–the amount of cheaper properties is down 1.5% in January vs. the same time last year. Meanwhile, the supply for the most-expensive properties, you know 500k to $3 million has jumped 37%.
The bottom line is that home prices, driven up by the rich, have outpaced wages for almost all of the young and working class. The median age of first-time buyers has jumped from 29 in 1981 to 36 in 2022, the oldest in the National Association of Realtors’ records.
The Richie Rich’s of the world have always had an advantage. Historically, 1/3 of first-time buyers received money from relatives to cover the down payment. Freddic Mac reports that in 2021, over 40% of young homeowners listed a co-borrower, someone over 55.
Thanks to higher interest rates, a buyer purchasing a $400,000 home with 20% down on a 30-year fixed loan, the monthly payment, including principal and interest, is now roughly $230 a month more than it would have been a month ago. Compared with a year ago, when rates were in the 4% range, today’s monthly payment is about 50% higher, according to CNBC’s Diana Olick.