With 10.1 million people out of work, it can be rather confusing to understand why the housing market is as hot as it’s been in years.
In December 2020, the median price of an existing home sold was $309,800. This represents a 12.9% increase from a year prior and is also the highest median price for a December on record.
If people are out of work, how can others afford to buy a house?
Answer: low interest rates. The average APR on a 30-year fixed-rate mortgage has been hovering between 2.8% and 2.9% since the start of the year.
Which means now might be just the perfect time for people normally shut out of neighborhoods in New York, Los Angeles, and San Francisco to consider buying their dream apartments and homes.
Indeed, according to appraiser Miller Samuel and brokerage firm Douglas Elliman, Manhattan, New York City’s costliest borough, saw purchase contracts for co-ops and condos double in January from the same month in 2020.
Let’s have a look at some other trends which are helping affluent first-time buyers get on the housing ladder at record rates. Now might be the perfect time to buy.
Low interest rates might be the initial motivation, but lowered prices on condos are also welcoming first-time buyers.
Some Manhattan condos have prices that have been reduced by 20% or more, as owners flee to the suburbs or leave New York City altogether. Markets that traditionally had been a seller’s market have flipped, as buyers now hold power they did not previously.
In California, the top housing market is surprisingly not San Francisco, but rather Sacramento, which witnessed a 17.20% sales growth entering 2021. This could mean affordability for condos in San Francisco, which can attract affluent first-time home buyers.
Low mortgage rates are not enough to secure a mortgage for a homebuyer: there is also the matter of the borrower’s credit score that lenders use to set the mortgage rate.
It stands to reason that in a recession, credit scores plummet, as individuals struggle to pay bills, miss payments, and potentially max out credit cards. However, the reverse actually occurred: the average FICO credit score increased and hit a record high of 711 (out of 850) in July 2020.
How could this happen? For one, federal relief packages, including stimulus payments, student-loan forbearance programs, and extended unemployment benefits, have been helping borrowers stay financially afloat.
Further, credit card companies and other creditors have been more understanding with customers, due to the grave health consequences of COVID-19 and its effect on households and the workplace.
As such, first-time home buyers can leverage their current, hopefully higher, credit scores to get on the housing ladder.
Although there seems to be a rather strong picture of consumer credit during the pandemic and associated recession, there are storm clouds on the horizon: foreclosures.
According to data from researcher CoreLogic, the number of seriously delinquent mortgages (those that are at least 90 days past due) more than doubled from May to June 2020—the highest level in more than five years.
Not all homeowners will foreclose and lose their homes, of course. Many are still under mortgage forbearance programs—though these will expire eventually.
During the crisis a decade ago, close to 10 million Americans lost their homes through foreclosure or bank-approved short sales. While this time around wide-scale foreclosures are less likely because borrowers own significantly more equity in their homes than they did ten years ago, foreclosures may advantage first-time affluent home buyers.
Buyers looking to purchase a property in formerly tight markets like New York, Los Angeles, and San Francisco might benefit from an expected surge in foreclosures—scooping up a property at a bargain price they couldn’t have imagined even two years ago.
With low interest rates, a buyer’s market, a strong credit picture, and other factors, now might be the perfect time for high-earning professionals to consider making their first real estate purchase in formerly out of reach areas like Manhattan, San Francisco, and Los Angeles.
Though it's never easy to buy in a sellers’ market, a mortgage tailored for high-earning professionals can simplify the process.
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