MReport May 2022

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20 | M R EP O RT COVER STORY With the stakes high and the aspirations of many on the line, MReport spoke with mortgage industry experts about the chal- lenges currently facing homebuy- ers—and whether there is any relief in sight. The Players in the Game T o understand the affordability struggle, one must realize that it's not just some individual waltzing into a closing to literally steal the day away that is the sole factor in this game. The first character in this chess game of affordability is mortgage rates. It had been 732 days since the Federal Reserve Open Market Committee (FOMC) cut interest rates in an emergency meeting in light of the COVID-19 pandemic. But all that changed on March 16, 2022, as the FOMC raised the nominal interest rate by 25 basis points (Editor's note: As this book went to press, on May 4, the FOMC increased the federal funds rate interest rate by another 50 basis points to 0.75-1.00%). This move was akin to tossing a boulder into a calm, still pond. The first ripple witnessed was the upward rise in mortgage rates, which have, as of this writing, rose for the seventh consecutive week, hitting the 5.11% mark. "I have deeply rooted concerns about homeownership in the U.S.," said Stanley Middleman, CEO of Freedom Mortgage. "We are a country that prizes home- ownership as part of our culture, yet forces seem to be at work that make this an ever-increasing chal- lenge today." And although home starts are beginning to show signs of life, the lack of homes available is the second major player in the af- fordability game. Zillow recently reported that after six consecutive months of dwindling inventory, 11.6% more homes were available in March than in February, the largest one-month jump in Zillow's records. According to Zillow, inventory remains 22.5% lower than just one year ago, as the estimated 754,000 homes that were on the market in March represent a figure lower than in any month on record before January 2022. The number of newly listed homes in March jumped 35.8% from February to about 386,000, but this still remains 8.5% lower than last March's pace of new listings. "The largest issue outside lender control is inventory, which long- term must adjust to market needs to make real headway on afford- ability," said Joe Puthur, President of Mortgage Coach. "Builders are not constructing enough homes for first-time homebuyers because the margins are not there and a reluctance to retrofit commercial to high density housing is unnec- essarily present." Persistent supply chain chal- lenges have served as a roadblock for many builders in their attempt to bring housing supply numbers up to keep pace with demand. The National Association of Home Builders (NAHB) notes that volatil- ity in lumber prices has raised the cost of a typical single-family home by more than $18,600, and has added approximately $10,000 to the cost of a typical apartment since last August. "The four 'L's—Legal, Labor, Land and Lumber—are working against the economics of home- building," explained Rob Chrane, Founder and CEO of Down Payment Resource. "Until we can incentivize new construction, there will continue to be a dearth of affordable, entry-level housing. Many localities across the country are reevaluating zoning, permit- ting, and other regulations that inhibit the development and pres- ervation of affordable housing, but by definition, that's a piecemeal effort and will take years, maybe decades." The spike in home prices is yet another thorn in the side of homebuyers nationwide, as the latest RE/MAX National Housing Report for March 2022 found home sales jumping 32.2% over February, posting a median sales price of $360,000 as buyers contin- ued to outnumber sellers. While these three factors have merged to pull many buyers out of contention, Paul Buege, President and CEO of Inlanta Mortgage in Pewaukee, Wisconsin, advises that consum- ers ignore the forces, yet focus on what they do have power over. "It's hard not to notice the head- lines, as everything we are reading and experiencing today points to increased prices for food, gas, housing, and rents. Affordability has everyone's attention," Buege said. "Yet, as with many things in life, placing too much focus on what cannot be controlled can make the current situation seem more difficult. Instead, consumers should focus on the things they can control, including their spend- ing habits, their savings, and their credit profile." A Time of Prosperity? M arketwatch reported on a recent Oxford Economics study that found rising stocks and financial assets helped U.S. household wealth grow by $19 trillion during the time of the pandemic, reaching approximately $137 trillion. Discretionary spending or non-essential spending slowed to a halt during the pandemic, as stay-at-home orders kept people from vacationing, dining out, going to the movies, etc., leaving many with newfound savings. In addition, payments from the government's $2.2 trillion eco- nomic stimulus bill, the CARES Act, further added to Americans' savings, increasing the nation's household net worth 16% from the end of Q 4 2019 through Q1 2021. This wealth accumulation positioned many first-time buyers with the foundation for a solid "We are a country that prizes homeownership as part of our culture, yet forces seem to be at work that make this an ever- increasing challenge today." —Stanley Middleman, CEO, Freedom Mortgage

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