EC The 50 Altered States Of American Housing

“Looking ahead, a strong labor market and rising incomes should support the renter-to-homebuyer transition,” the report started off optimistically. Then the however arrived in the form of, “though tight credit conditions remain a challenge.”

Wait a minute. Haven’t we been reading for months about the renaissance in mortgage lending tied to a relaxation of standards? It is certainly the case that larger credit unions have been underwriting mortgages at a fair clip. And there’s plenty of proposed legislation out there to ease the regulatory burden.

For now, at least according to the Mortgage Bankers Association’s Credit Availability Index (MCIA), it’s become increasingly difficult to qualify for a mortgage despite mortgage rates being just above their lows for this cycle. As of June, the MCIA was at its lowest level since February 2015; it’s been sliding for eight months now. At the same time, the difference between jumbo (for homes priced above $417,000) and conventional mortgage rates is the widest since March 2011.

“This shows that despite falling interest rates, there is a heightened sense of risk aversion in the market,” concluded BofA’s team.

Where does that leave potential homebuyers?

One answer to this question is, “at home,” as in the home they grew up in. A recent analysis by the Pew Research Center found that for the first time in 130 years, Americans between the ages of 18-34 are more likely to be living with their parents compared to any other living arrangement. Some 32.1 percent are bunked up with their parents while 31.6 percent live with a spouse or significant other; only 14 percent live alone.

The sunny side of the story first. The stigma of living at home has worn off. It’s just economically easier to get that law degree or MBA while living at home. And then there’s always mom’s cooking (if she’s a good cook, that is.)

The less bright reason is also culturally-driven. It’s no secret that many millennials are drawn to big cities. The problem, as per a recent Zillow study, is that lower income earners would need to fork over 30 percent or more of their monthly income to make a mortgage payment in one third of major housing markets. The brighter the lights and bigger the city, the more you would spend leaving less for every other expense. So you live with your folks…if that’s an option.

The truth is, in recent years, millions who can’t afford to buy a home have been forced into the rental pool where inflation has also been unbridled. Typically, the rental inflation captured in the consumer price index is too kind, tracking at unrealistically low levels; for the record, it’s risen by 3.8 percent over the last year.

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David P. Goldsmith 5 years ago Member's comment

A great read as always Danielle DiMartino Booth.

Moon Kil Woong 5 years ago Contributor's comment

Federal Reserve and Fannie and Freddie Mac have created a horror story by disrupting the free market and yet they blame the free market for the conundrum. Eventually, high value homes will face a similar disunity as their inefficient and overvalued natures break down. In the end everyone loses when the market is disrupted by the greed. Yes it is the greed of bureaucrats and banks including the Federal Reserve that created this mess that is only growing worse by the day.

This story is far from over as the young and middle class pay the price for misdeeds done in the name of prosperity for the well connected and sold to the public as lies upon lies.