Real Estate

First-time buyers catch a break, NAR’s Yun says

Low mortgage rates are making up for lagging income growth

The cheapest financing in more than three years is making it easier for first-time buyers to afford a home. A tiny bit easier.

Instead of having just enough income needed to buy a median-priced starter home at current mortgage rates, they now have a small buffer, according to Lawrence Yun, chief economist of the National Association of Realtors.

In 2019’s second quarter, first-timers had 100% of the median household income to buy a home, as measured by NAR’s First-Time Homebuyer Affordability Index that crunches income, financing rates and home prices. By the third quarter, the index showed they had 105% of the income they needed.

“The low mortgage rates are clearly helping the market conditions,” Yun said in an interview with HousingWire. “Home prices consistently rising at a faster pace than people’s income growth has hurt, but because of the historically low rates, it’s providing marginal opportunities for first-time buyers.”

Lower mortgage rates compensate for higher home prices and lagging income growth because the cheaper financing lowers a buyer’s monthly payments.

The average U.S. rate for a 30-year fixed mortgage was 3.94% in 2019, according to Freddie Mac. That’s the lowest annual average since 2016 when it was 3.65%. The average for 2020 and 2021 probably will be 3.8%, the mortgage financier said in a forecast last month.

Home prices grew 3.2% in 2019, according to the forecast. That’s a slower pace than in 2018 when the growth rate was 5.1%.

However, income growth has been lethargic. The median household income was $66,043 in November, a gain of 1.9% higher than a year ago, adjusted for inflation, according to Sentier Research.

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