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The Federal Housing Finance Agency is dropping serious cash to help buyers

(HOMEOWNERSHIP) What would you do with half a billion dollars? The Federal Housing Finance Agency is putting it towards affordable housing.

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Last year, ATTOM Data Solutions, released a study showing that wages in about 80% of the United States can’t keep up with the rising cost of buying a home. In fact, for about 59% of the areas studied, it was cheaper to rent three bedroom housing, rather than buy.

As such, it should come as no surprise that the number of low-income individuals surpasses the amount of affordable housing available. “Is it a housing problem, or is it an income problem?” says Chris Herbert, managing director of Joint Center for Housing Studies at Harvard, “I would say it is both.”

The thing is, a lack of affordable housing hurts everyone. Would-be homeowners are left renting and forced out of certain areas (and opportunities), while rising prices can also make it more difficult for people to sell their homes. Yikes.

Luckily, it’s not all bad news, thanks to the Federal Housing Finance Agency, which is allocating “$502.2 million to the National Housing Trust Fund and the Capital Magnet Fund.”

Don’t get me wrong, this isn’t going to fix the systemic problems that have created this disparity between income and housing prices, but it’s definitely a nice start. For instance, the National Housing Trust Fund commits at least 90% of its funding to creating and maintaining affordable housing, with the other 10% going to help first-time homeowners take on some of the unexpected costs of homeownership.

Meanwhile, the Capital Magnet Grant Fund focuses on providing grants to help revitalize low-income communities. They’ve created over 13,000 affordable homes so far, though only about 12% of these homes are for homeownership – most are rentals. Still, not bad when it comes to helping low-income citizens afford the rising prices of living.

Both groups have great track records, so it will be exciting to see how they utilize this donation of over half a billion dollars. The president of the National Association of Realtors®, Vince Malta, also commended the move.

“Initiatives that address the root of the nation’s housing affordability crisis must take center stage in discussions surrounding the future of housing finance,” Malta explained, “NAR looks forward to leading this discussion and working with the FHFA (Federal Housing Finance Agency) to ensure all responsible, credit-worthy individuals can achieve the American Dream of homeownership.”

Brittany is a Staff Writer for The American Genius with a Master's in Media Studies under her belt. When she's not writing or analyzing the educational potential of video games, she's probably baking.

Homeownership

How buyers are competing in a tight home buyers market

(HOMEOWNERSHIP) It’s a seller’s market with housing supply at an all-time low. Here’s what buyers are doing to increase their chances of buying a home.

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Family unloading boxes inside of a home, previous home buyers.

Home inventory is at an all-time low in most places around the country. Most people believe that the COVID-19 pandemic is responsible. Families are staying put in their homes, rather than looking for a new place to live. The National Association of Realtors reports that in March there were almost 5 offers for every home sold in the United States. Utah Realtors reported an average of 7 offers per home. Sellers and realtors are winning in this highly competitive market, making us wonder how buyers are faring. The latest REALTORS® Confidence Index Survey gives us some indication of what buyers are doing to boost their real estate transaction success.

Cash is king

According to the NAR, cash sales are up by an average of 21%. Buyers are hoping that cash makes their offer more attractive. Closing without a loan has a lot of benefits to the seller. The sale is more likely to close, as it isn’t dependent on a loan. Plus, there are less costs involved in closing. Since 2013, cash sales haven’t been trending upward, so this is an interesting turn for sellers. Buyers who make cash offers reduce the risk of getting rejected by the seller.

Buyers making larger down payments

Sellers also benefit when buyers make a 20% down payment or more. A higher down payment increases the chance of getting a loan. According to the NAR, almost 50% of buyers are making a down payment of at least 20%, which is up from 40% of buyers in 2011. Buyers avoid mortgage insurance premiums, which makes it a win-win for everyone.

Buyers aren’t even offering or negotiating

The third way buyers are coping in this market is to back off and not even make an offer when they know a home already has competition. Why get your hopes up, only to have them dashed when you can’t negotiate?

Will supply return?

The good news is that the housing supply outlook is on the increase. As vaccinations roll out and people feel safer to show their home, more homes should come on the market. Housing permits are up, too. This should help even out the market and give buyers a better chance to find a home.

 

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Homeownership

Home sales dip 10%, inventory levels continue to plague the market

(HOMEOWNERSHIP) While demand for home sales has remained high, a lack of inventory means that numbers have continued to dip, according to the NAR.

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Home interior with gray couch, cactus pillows, and succulents on the coffee table in front of the couch.

In February, all regions experienced a decrease in pending home sales (contracts penned), according to the National Association of Realtors (NAR). Compared to January, sales fell 10.6%, and fell 0.5% from February 2020.

As with every real estate news story you’ve read here in recent years, NAR continues to point to tight inventory levels as the continuing plague on the market.

“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” said NAR’s Chief Economist, Dr. Lawrence Yun.

He observes that overall demand does not appear to be impacted by mortgage rates trending upwards, expected to remain low at no more than 3.5% this calendar year.

It is interesting to note, however, that more expensive homes had increased sales activity because of “reasonable supply,” per Dr. Yun, adding that homes above the $250,000 mark have driven home sales in recent months.

That said, Dr. Yun indicates that even homes priced above $500,000 to less than $1 million are subject to the tight inventory challenges.

“Potential buyers may have to enlarge their geographic search areas, given the current tight market,” Dr. Yun noted. “If there were a larger pool of inventory to select from – ideally a five- or a six-month supply – then more buyers would be able to purchase properties at an affordable price.”

In past months, NAR has repeatedly pointed to the same solution to the inventory challenge – new home builders. If supply were increased and housing starts improved, demand would be more readily satiated and fewer people would be priced out of the market.

Economic conditions typically shift under any new President, and with an ongoing pandemic, we are watching for any signs of hope in a dark time. With building material costs continuing to increase, labor conditions in the sector remaining difficult, mortgage rates are rising (albeit slowly), inventory levels are not expected to immediately improve.

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Homeownership

Why realtors shouldn’t use the term ‘Starter Home’

(HOMEOWNERSHIP) You see the term in the MLS for fixer uppers, you hear it when Realtors are working with first time buyers. But the term “starter home” shouldn’t be in anyone’s vocabulary. Here’s why.

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Just words

Collins English Dictionary defines a starter home as a “small, new house which is cheap enough for people who are buying their first home to afford.” You won’t find the phrase too often outside of the real estate industry.

There isn’t much about the etymology of the phrase, but most likely, it’s a marketing ploy to get people to buy into the idea of purchasing another home in a few years.

Grind your gears

Mark Greutman, husband to Lauren Greutman, believes that the term “starter home” should bother people. The phrase implies that you will upgrade later.

Your starter home isn’t good enough for the rest of your life. And not to get into how well Americans have it, what about people who will never be able to afford anything more? Is it an insult to them?

Do you really need two living rooms?

Older generations bought one home and lived in it until they could no longer be independent. In today’s world, we buy a starter home, then upgrade to have more space, to live farther away from our neighbors, to have rooms that are only used once or twice a year, and to make sure you have a 2 or 3 car garage to hold your vehicles and more stuff, some of which isn’t taken out very often.

But consider this: You could pay off your starter home in 15 to 20 years, if you budget right.

You could be out from under a mortgage and have money to travel, send the kids to college, or even retire early. When you think about what led to the financial crisis in 2008, isn’t it better to have a smaller house where you can make the payments than worry about losing your house?

Be content where you are

Realtors are motivated to make sure that they have customers. If people buy one home with the intent to stay, will the market dry up? Probably not, because people move and a new generation will be ready to purchase homes for their own family.

Let’s think about that phrase, “starter home.” It fuels consumerism and discontentment. Don’t call cheaper houses starter homes, but just a home.

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