New Homebuyers May Stand A Chance In Cooling Housing Market

November 20, 2018

Cute curly-haired girl packing books before moving out

The housing market’s recent cooldown is helping new homebuyers enter the market. According to the National Public Radio, new homebuyers have finally been able to enter the housing market now that home sales across the U.S. have been hitting the breaks to correct high housing prices.

Since the Great Recession hit in December 2007, housing prices have increased rapidly. Many homebuyers from multiple generations (five generations are currently working side-by-side in the American workplace for the first time in history) entered the housing market at once, resulting in a low supply of housing. The fierce competition was just one of the factors that drove housing prices up.

Major metropolitan areas such as Los Angeles and New York City saw the biggest price hikes. In June 2018, the median housing price in Los Angeles was at record high at $615,000.

Homeowners were profiting from the booming housing market, Lawrence Yun says. Yun is the chief economist at the National Association of Realtors.

“But, for the renters and first-time buyers who want to participate in the American dream of ownership, it has become much more difficult, with prices rising too fast,” Yun says.

However, the housing market has started to shift in recent months. Although mortgage rates are still rising, home prices are finally beginning to slow down.

This slow-down isn’t because the housing market is facing a crash. The market has reached a point where few homebuyers are able to afford houses at their significantly high prices. In fact, homebuyers searching for homes at lower prices have actually started to increase sales prices in smaller cities.

The housing market cooldown may be enough to allow first-time homebuyers to have a chance in the competition. According to MagnifyMoney, this is significant for millennials, the oldest of which are now almost 40, whose college loan debt has forced them into larger mortgages and lower-value homes.

“The home values of millennials younger than 35 with student loan debt are 5% lower than those without student loan debt,” the MagnifyMoney team says. “The median value of homes for those with unpaid student loans was $157,000 in 2016, while millennial homeowners without student debt have homes with a median value of $165,000.”

Millennial homebuyers have also been impacted by stagnant incomes, which haven’t increased in recent years despite rising mortgage rates.

The average mortgages rate are approaching 5%, analysts say, which is a full percentage higher than they were in 2017.

“For a consumer, a typical homebuyer at a typical sort of mortgage size, that means about $150 a month in higher payments for the same price home,” says Len Kiefer, the deputy chief economist at Freddie Mac.

And that’s just the mortgage. Homeowners still need to be able to afford to make changes or repairs to their homes. Furniture alone is the third most expensive thing people will buy after a home and vehicle.

Up to 60% of homeowners are planning to renovate their master bathroom, which can cost up to $11,000. And many homeowners may make changes to their home’s roofing, yet metal roofs can reduce homeowners insurance costs by 35%.

That said, analysts agree that affordability will still be a challenge for potential homebuyers in major housing markets. But the cooldown of the housing market could give buyers the chance to buy homes at a moderate, sustainable rate.

“Maybe the housing market has a good story over the next couple of years,” says Kiefer, “if we can figure out a way to supply housing at an affordable price.”

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