TheMReport — News and strategies for the evolving mortgage marketplace.
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42 | M R EP O RT O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T THE LATEST ORIGINATION The Down Payment Struggle Monthly mortgage payments for U.S. homeowners have hit record lows. What's preventing prospective homebuyers from making this first step toward homeownership? A ccording to a Zillow re- port, monthly mortgage payments are getting more affordable for most Americans. Zillow reports that mortgage rates for U.S. home- owners have hit record lows. However, the Zillow report is not all sunshine and roses, as the real estate expert's analysis also revealed a catch. According to Zillow data, even though mortgage payments are decreasing, the fact remains that American homeowners are still having trouble getting into homes in the first place. The reason for this schism is that would-be buyers face extraordinary price growth in total home prices—prices far above the average American's income (more so than we've seen in the past several years). This makes coming up with a down payment tricky. To get a good idea of the situation, Zillow revealed that homeowner households earning a median income for American workers reported shelling out 17.5% of their total earnings toward a mortgage during September. This figure was down from 19.6% as of just two years ago. As for the record-low mortgage rates mentioned above, specifi- cally, those have dwindled to 2.8% this month. This is an impres- sive decrease from October 2018's much higher rates that hovered around 4.85%. Zillow senior economist Chris Glynn commented on the current predicament facing American homeowners today, even with falling mortgage rates: "The path to homeownership, and the sav- ings and wealth-creation benefits that come with it, has gotten harder for many buyers. Saving for a down payment is the single biggest challenge many potential homebuyers face, and it is espe- cially difficult when incomes fail to keep pace with home values." Glynn added: "Even still, many buyers sense that prices will slip further out of reach in coming years and desperately want to lock in low mortgage rates while they can, which is likely contributing to the urgency we're seeing in the market. The current environ- ment is a double win for longtime homeowners who have enjoyed big equity gains and are now able to refinance their mortgage to lower their monthly payments." COVID-19 Might Not Be Causing the Suburban Homebuying Shift Has the national health crisis driven an acceleration in migration? An economist weighs in. R eports that COVID-19 is causing migration from urban centers to suburbs abound, but are those stories entirely accurate? First American Chief Economist Mark Fleming recently revealed his insights regarding those rumors about pandemic- driven migration in America. Specifically, Fleming weighed in on whether the COVID-19 pandemic has driven an accelera- tion in residents moving from the cities to the suburbs in droves. According to recent media reports, the pandemic has sparked a mass migration from urban areas to the suburbs. While many Americans may indeed be feeling cramped in cities and desire the increased space offered by the suburbs (especially for those who have now been relegated to work- ing from home due to COVID-19- related safety measures), Fleming believes that this is not the sole catalyst for the shift toward the suburbs that we are currently experiencing. Data shows that this shift has been happening for a while but has perhaps been more pronounced due to the pan- demic. Other factors that have led Americans to make a move have been lifestyle considerations that cause the suburbs to be far more attractive than cities, such as hav- ing a greater chance of purchasing a home in these lesser expensive areas. This is especially true among the millennial set. However, First Am consulted their data to see if it in any way confirmed that the pandemic has possibly accelerated this trend. Fleming summarizes their find- ings, "While our analysis may not yet confirm the widely discussed pandemic-driven sprint to the burbs, faint signals of a jog are picking up pace." First Am's study did not conclusively prove that suburban housing markets have strength- ened at a disproportionally faster rate when compared with urban markets as a result of the pandemic. However, the increas- ing house price appreciation in suburban ZIP codes does seem to reveal that demand is increasing (and is indeed higher than supply) in the suburbs. "Many buyers sense that prices will slip further out of reach in coming years and desperately want to lock in low mortgage rates while they can, which is likely contributing to the urgency we're seeing in the market." —Chris Glynn, Senior Economist, Zillow