A “For Sale” sign in Arlington, Virginia, on August 22, 2023.
Andrew Caballero-Reynolds | AFP| Getty Images
Fewer people can afford to buy a house today.
In addition to rising home prices, 30-year fixed mortgage rates have been near their highest level in more than two decades.
“U.S. home prices are near record highs, and mortgage rates have risen to their highest levels since 2000,” said Bankrate analyst Jeff Ostrowski. “For today’s homebuyers, times are definitely hard. They have limited options and an emphasis on affordability.”
For some customers, that leaves only one option: ask their parents for help.
Buyers turn to mum and dad’s bank
“First-time buyers converge down payment sources from at least two places,” Zillow chief economist Skylar Olsen said recently on CNBC’s “Last Call.”
“Some of that is hard savings,” she said. “The other part is, say, gifts from family and friends.”
In fact, about 40% are tapping mom and dad’s bank, up from just one-third pre-pandemic, Zillow found. “That’s a very privileged network,” Olsen said.
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Homebuyers need a salary of $114,627 to afford a median priced housefront for home buyers in the US, according to another report by real estate site Redfin, a very high bar for those just starting out.
To close the gap, a growing proportion of younger house hunters are now seen as “home buyers”, as they rely on family money to complete their purchase, a report said Redfin.
Nearly 40% of recent homebuyers under the age of 30 used either a cash gift from a family member or an inheritance to pay the down payment, Redfin also found.
Home affordability is a growing problem
Despite being the epitome of the American Dream, nearly three-quarters of homeowners said price is the biggest obstacle, a recent report by Bankrate found.
In fact, housing is far more affordable today than at any time in recent history, according to several studies.
Over the past 35 years, the payment-to-income ratio – a commonly used measure of the proportion of median income it takes to cover the monthly principal and payment Interest on the median home with a 30-year mortgage and 20% down is on average less than 25%, according to data from ICE Mortgage Technology.
At its peak in 2006 before the crash, the payout-to-income ratio was 34%. At the end of 2023, the payout-to-income ratio is 40%.
‘Down payment isn’t everything’
Often, it’s the down payment that’s especially scary.
Still, there are options, noted LendingTree senior economist Jacob Channel. “While they are important, buyers should remember that a down payment isn’t everything, and, even if you don’t have tens of thousands of dollars you can send to one, that doesn’t mean you won’t be able to. to buy a house.”
Although a 20% down payment is still considered the standard, the federal government, states, banks and credit unions all offer programs with much lower down payment requirements, or even none at all.
“Keep in mind that many lenders and certain loan options, such as FHA mortgages, do not require particularly large down payments,” Channel said.
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