With home prices rising and mortgage rates increasing, Americans are finding it hard to make a home purchase a reality, which could pressure a whole group of potential buyers.
The Wall Street Journal, citing data from CoreLogic, reported that about one in five mortgages made during the winter has borrowers that spend more than 45 percent of their monthly income on paying their mortgage and other debts. That, according to The Wall Street Journal, is the largest proportion since the housing crisis. It is nearly triple the proportion of loans that had that much debt in 2016 and the first half of last year.
As a result of the rising prices, real estate agents are worried that the spring selling season this year may prove to be one of the weakest in the past few years. This comes as consumers are more upbeat about the economy and their own financial prospects. At the same time, they think now may not be the right time to become homeowners, noted The Wall Street Journal, citing a survey conducted at the end of March by the National Association of Realtors.
Mortgage rates have been climbing all year, and although they are still at record lows, they are up to a point that could shut some buyers out of the market. Citing Freddie Mac, the WSJ reported the average mortgage rate on a thirty-year fixed rate loan is 4.4 percent, which is up from 3.95 percent at the start of 2018.
As a result of all this, lenders have been looking at ways to ease lending standards. For instance, Fannie Mae and Freddie Mac have been looking for ways to make homeownership cheaper — such as backing loans by lenders who pay down a buyer’s student loans — and have made it easier for people who are self-employed to get mortgage loans. For a few years now they have both backed loans that have down payments of as little as 3 percent, noted the report. In the summer, Fannie Mae raised the debt-to-income limit to 50 percent from the typical 45 percent limit. Freddie Mac is also starting to back more loans with higher debt-to-income ratios, noted the report.
As a result of Fannie Mae’s policy, there were 100,000 new mortgages issued that otherwise wouldn’t have happened, the Urban Institute told the WSJ. It found the amount of Fannie Mae borrowers that have high debt-to-income ratios and credit scores that were lower than 700 increased close to 25 percent in the first two months of 2018. That is up from 19 percent in the same time a year ago.