Finance

The six figure payment between you and your first home


The Federal Reserve’s announcement last week that no changes would be made to the federal funds rate came as mortgage rates for both 15 and 30-year loans began to dip (slightly). With rates expected to fall sometime this year, the expectation of many economists is that home prices will come down, as will mortgage rates. The slight downward trend in rates is a relief for some hoping to purchase a home but have been priced out of the market in this high-rate environment.

A rude awakening

However, a new report from Zillow might be enough to put a damper on the plans of many first-time home buyers. The team at Zillow found that the average home buyer will need to put down “nearly $127,750, or 35.4%, to comfortably afford a typical U.S. home.” The analysis looked at “major U.S. metropolitan areas,” perfectly demonstrating how unaffordable the housing market has become across the country.

When interest rates are higher, and the amount of time one has to pay back the loan remains constant, a larger payment will be needed to cover the interest associated with the loan that accumulates each month based on the principal balance.

Hope on the horizon

Researchers at Zillow were able to identify a few regions where prices were beginning to fall and more affordable units were being placed on the market. The organization judges affordability as a mortgage payment that is no larger than thirty percent of the average household income for a certain area. Zillow reported that the Midwest is home to the largest share of these homes, with the authors noting that homes in this region “have largely grown at a strong clip in recent years.” In terms of cities where young families are interested in moving, the researchers point to Austin, Jacksonville, Charlotte, and Raleigh as cities where “a median-income household can still qualify for a conforming loan for the typical home with 20% down, assuming a qualifying credit score and no other debt.”

More good news came this week from the US Census Bureau, which reported that construction on single-family homes was up compared to the figures captured a year ago. Under the current economic conditions the US is experiencing, a greater stock of houses, so long as they are affordable, could help to bring down prices.

The supply is historically low, and buyers face slightly less competition as more units come on the market. Nevertheless, increasing the housing supply is a long-term solution and will not have immediate impacts, particularly if the units being built will target buyers with higher incomes.



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