MReport August 2020

TheMReport — News and strategies for the evolving mortgage marketplace.

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28 | M R EP O RT FEATURE F irst the bad news, which will hardly come as a surprise: The purchase market will be down in 2020. Uncertainty amidst the coronavirus is influencing decision- making for both buyers and sellers. With new construction projects at a standstill, inventory will remain tight and affordability may get even worse. The silver lining is mortgage rates have never been lower than they are today. In April 2020, the average rate for a 30-year fixed mortgage fell to the lowest level ever recorded at 3.23%—just beating the previous record met in March earlier this year. While refinance volumes have already skyrocketed, however, surging unemployment and lower wages will slow the resale of existing homes for the next several months and maybe longer. For the mortgage market, refinances will be the band-aid that will carry it for the next several months. But the industry needs a strong purchase market in order to be sustainable long term. So, is there a cavalry on its way? Hispanic Homebuyers Are Driving Homeownership L ast year was a great year for Hispanics from an economic perspective. Latinos saw an increase in median household income and educational attainment, and they continued to have the highest labor force participation rate of the last two decades. These factors brought on an increase in the Hispanic homeownership rate for the fifth consecutive year and a net gain of 277,000 homeowners. The National Association of Hispanic Real Estate Professionals (NAHREP) 2019 State of Hispanic Homeownership Report released last month documents these trends in detail. But 2019 wasn't an anomaly. Hispanics have been driving growth in the purchase market for years. Over the past decade, Hispanics have accounted for more than half of the homeownership growth in the U.S., adding more than 1.9 million new homeowners. For the last five years, in fact, we've seen year-over-year growth in the Hispanic homeownership rate, as Latinos are forming new house- holds faster than any other demo- graphic. The math is simple—as more household formations form, more will become homeowners and raise the rate of homeowner- ship. Hispanics' work ethic and affinity for homeownership is pretty remarkable. Hispanics are also incredibly young and the fastest-growing population, accounting for more than half of U.S. population growth over the past 10 years. With a median age of 29.5, they are almost a decade younger than the general population and a full 15 years younger than their nonHispanic white counterparts. Considering that one in three Hispanics are under 18—upwards of 20 million people—there is no doubt that Hispanics will continue to fuel the market well into the future. The growth in both new households and older households contributes substantially to the U.S. GDP. In 2018, the National Association of Home Builders estimated that housing made up 16.3% of the overall U.S. GDP, or nearly $3.4 trillion dollars. Over the last two decades, the Hispanic contribution to housing GDP significantly outpaced the overall market. As the overall housing market nearly doubled over that time period, Hispanics more than tripled their monetary contributions to housing GDP. While the coronavirus may put a damper on the purchase market in 2020, the fundamentals that have driven Hispanics through a decade of homeownership gains will remain. Over the next 10 or 20 years, the name of the game in the mortgage industry will be who can best capture this market share. Having a strategic plan will be vital. Understanding the Hispanic Borrower T he next generation of homebuyers will look different than past generations, and not just for Latinos. Our market is changing, plain and simple. Housing costs are getting increasingly more expensive, particularly in urban centers. Traditional W2 wages earners are becoming less common, while self-employed individuals and gig- economy workers are becoming the norm. These shifts have been taking place slowly over time, yet mortgage underwriting remains stuck in models that are more reflective of past generations. What do lenders need know about Hispanic borrowers? Hispanics utilize low-down payment products. According to our research, Hispanic homebuyers are twice as likely to finance their home with less than a 10% down payment. In fact, the median down payment for a Hispanic borrower in 2018 was 3.5%. Hispanics are also twice as likely to use down payment assistance programs. Hispanics are more likely to be self-employed, gig- economy workers and live in multigenerational households. Documenting income for self- employed individuals and gig- The Resilience of Hispanic Homebuyers How this sector of buyers will stabilize the purchase markets—once again. By Sara Rodriguez

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