A cooler market could be giving new buyers reason for optimism, says top loan officer
Affordability has been the number-one challenge for first-time homebuyers in the US mortgage market in recent years, with intense bidding wars during the COVID-19 pandemic, surging home prices, and climbing mortgage rates all contributing to a fraught environment facing new buyers.
Plenty of would-be homeowners found themselves frozen out of the market as bids climbed well above list price during the pandemic, while a spike in mortgage rates since 2022 has further squeezed many prospective buyers’ budgets.
But are prospects improving amid a cooler market and a recent dip in average 30-year fixed mortgage rates below the 7% mark?
For Kristin O’Neil (pictured top), senior loan officer at Open Door Lending, 2024 has seen an uptick in first-time buyers making inquiries and having a serious chance of purchasing a home.
She told Mortgage Professional America that new buyers were finding much more opportunity in the current market than those of years gone by, especially as momentum has begun to shift away from sellers and back towards buyers. “Coming off of two to three years that felt very difficult for first-time homebuyers to compete, I have seen so many first-time buyers be successful this year,” she said.
“We are seeing more seller concessions which has really made a difference in making homeownership more affordable for many. My first-time homebuyers who are represented by seasoned real estate agents are doing extremely well in the current market. Having strong representation is more important than ever and buyers see the value in that.”
That’s not to say everything is going first-time buyers’ way. Home prices are no longer rising at the same pace as during the pandemic, but they remain prohibitively high for many new buyers’ budgets and a lack of inventory is still at play across many markets.
Nonetheless, a less frenzied market across the country is generally starting to favor buyers, according to O’Neil. “My market in Richmond, Virginia is still fairly competitive due to the lack of inventory,” she said. “However, I’m hearing from realtors and loan officers across the country that many are seeing a shift where listings are starting to sit a bit longer and it’s becoming more of a buyers’ market.”
Nick Taylor of Better .com advises buyers to stay informed and consider working with knowledgeable professionals to navigate the tough market.
— Mortgage Professional America Magazine (@MPAMagazineUS) July 22, 2024
Read more: https://t.co/nTcCOmbs31
Where do challenges remain for first-time buyers?
In its latest report on the outlook for existing-home sales across the US, First American Data & Analytics highlighted a “daunting” market for first-time homebuyers despite the recent slowdown.
The fact that hopeful new buyers can’t rely on cash from the sale of an existing home remains one of the biggest drawbacks facing that cohort, according to First American’s deputy chief economist Odeta Kushi, particularly with national home prices having climbed so steeply since the beginning of the pandemic.
Still, recent data from the Mortgage Bankers Association (MBA) showed that while national mortgage applications slowed in June, first-time homebuyers were seeing some joy in turning their focus to newly-built homes as the average loan size dipped for the second month in a row.
MBA vice president and deputy chief economist Joel Kan highlighted that the share of FHA applications across the national market had jumped to 28.7% last month “as first-time buyers continue to account for a growing share of demand for newly built homes.”
Speaking with MPA in June, Kan also noted an unsurprising increase in the age of individuals in the first-time buyer profile because of their need to wait for longer to save up the amount required to purchase a home.
Outlook set to improve further if rates continue falling
A 13-basis-point drop in average 30-year fixed-rate mortgage rates last week also boosted hopes among buyers that affordability could be set to improve looking ahead, with the Federal Reserve expected to introduce rate cuts of its own – potentially beginning in September.
That fall, to 6.87%, meant rates slid to their lowest level since March after a prolonged period hovering around the 7% mark.
The Federal Reserve is scheduled to meet for its next decision on interest rates next week, on July 30-31. While it looks set to hold steady on rates yet again in that statement, markets overwhelmingly expect the following announcement – on September 17-18 – to result in the Fed’s first rate cut for years.
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