Black and Hispanic Home Buyers: The Effects of a Growing Mortgage Rate, Housing Costs and Rental Costs on Homebuyers and Renters
Home financing costs have skyrocketed over the past year, with mortgage rates doubling from a year ago at the same time that home prices have remained strong in many housing markets. This has priced out many would-be home buyers who cannot qualify for a loan.
The median income for first timers fell to $71,000 in the year ended in June, compared to $86,500 in the previous year. The median income of repeat buyers was $96,000, down from $112,500 the previous year.
The number of homes for sale went up, the number of properties still on the market went down and prices went down from their peak.
Economists and housing advocates have cautioned that the increasingly unaffordable housing market is locking many potential buyers, especially buyers of color, out of homeownership.
The majority of buyers were white in the year ended in June, up from the previous year. The Hispanic population of home buyers increased from 7% to 8%. 3% were black and 2% were Asian, both dropping from a year ago.
Lautz said that prior NAR research has shown that would-be Black homebuyers have lower incomes, higher debt and less likelihood of family support for a down payment than other groups. Black renters are more likely to pay more than 30% of their income to their landlord according to the data.
Homebuyers and Mortgages: The Fed’s Fighting Curve on the Price of Homebuying, and Mortgage Rates are Lower than Inflationary Rates
Homebuyers were less interested in buying near where they live due to the affordability crunch. Between 2018 and 2021, the median distance between a buyer’s current home and their purchased home was 15 miles. The typical distance during the year ending in June 2022 was 50 miles.
The typical home was about 1800 square feet, had three bedrooms and two baths, and was built in 1986, according to the report. That is a smaller and older home than in previous years.
The 30-year fixed-rate mortgage averaged 6.09% in the week ending February 2, down from 6.13% the week before, according to data from Freddie Mac released Thursday. The 30-year fixed-rate was 3.55% a year ago.
“The lower premiums will expand homeownership opportunities by lowering mortgage payments for qualified FHA borrowers, providing critical relief from the steep rise in mortgage rates and home prices just in time for the spring buying season,” said Bob Broeksmit, MBA’s president and CEO. “This will especially help minority homebuyers and low-and moderate-income households who are predominantly served by FHA loans.”
The Fed hiked its interest rates on Wednesday for the first time since March. The move to slow the pace of increases sends a clear signal that the central bank is seeing progress in its battle with inflation.
Mike Fratantoni, the Mortgage Bankers Association’s senior vice president and chief economist, said that 30-year mortgage rates are a function of market expectations for the path of the economy. “And investors are betting that the economic slowdown and the Fed’s eventual victory over inflation will result in lower rates over time.”
The cost of borrowing is going down because of the easing of inflation, according to George Ratiu.
The effect of the Fed’s actions are keeping a floor under mortgage rates for the short term, he said, adding that he expects rates to stay around 6% for the next few weeks.
“Most recent indicators point to a still-resilient economy,” said Ratiu. The labor market remains tight despite the Fed’s efforts to cool the economy: Wednesday’s Job Openings and Labor Turnover Survey, or JOLTS, showed there were 11 million job openings in December, the highest since July.
The next report on inflation, which will be released on February 14, will be used by housing economists to see if the pace of price hikes continues to slow.
The number of housing applications declined last week despite lower rates, which is an indication of the still-volatile time of the year for housing activity. As the spring homebuying season gets underway with lower rates and moderation in home-price growth, purchase activity is expected to pick up. Both trends will help some buyers regain purchasing power.”
Mortgage Insurance in the FHA Program: An Empirical Study of Mortgage Rates for Low- and Intermediate-Income Buyers in the United States
Freddie Mac receives mortgage applications from thousands of lenders across the country. The borrowers who put 20% down are included in the survey. The average rate is higher for buyers who put down less money upfront or have less than ideal credit.
An estimated 850,000 home buyers, mostly low- and middle-income and first-time buyers, will save an average of $800 on their home financing this year because of a change announced Wednesday by the Biden administration.
The Federal Housing Administration insured some of the loans taken out by the new borrowers. It will change the premium to half a percent.
It’s part of an ongoing effort to address housing affordability challenges in the United States. This change, which takes effect on March 20, is expected to expand access to home ownership, said Marcia L. Fudge, Secretary of Housing and Urban Development.
Ensuring that the FHA program provides affordable homeownership opportunities for families in underserved communities is important.
In return, FHA requires borrowers to pay mortgage insurance to protect the lender. This mortgage insurance typically adds to a borrower’s costs. But for borrowers unable to enter the housing market another way, FHA loans can often be the cheapest option.
But for homebuyers struggling to enter the housing market, there are some loans like FHA that come with required mortgage insurance. The insurance lowers the risk for the lender so that they can give a loan to someone who would not otherwise be able to get one.
The surplus has been made possible by the past few years of home price appreciation and high refinance volume, which makes it possible for HUD to make adjustments, without compromising the long-term viability of the mortgage insurance fund.
In other areas of the country where the median-priced home is lower, the savings will be lower. A home with a $200,000 mortgage will save borrowers $600 a year in Detroit.
The typical monthly principal and interest payment on a 30-year, fixed-rate loan for a median-priced $350,300 home in January 2022 with a 10% down payment was $1,425, according to data from Freddie Mac. A year later, the median-priced home costs $359,000 and the same loan has payments of $1,870 a month, a difference of $545 each month.
The share is less for borrowers buying new construction homes. The US Census Bureau shows that only 11,000 new homes were sold in the third quarter last year. It was the smallest share since the end of 2007.
The move strikes an appropriate balance between assisting homeowners and ensuring the capital reserve ratio and insurance fund remain strong, according to the National Association of Realtors, which supports the move.