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Housing Market Favors the Wealthy

Housing Market Favors the Wealthy

The gap between the “haves” and “have-nots” appears to be widening in the real estate sector as a recent report found that the majority of home buying activity is coming from the wealthiest buyers.

The Demand Institute evaluated 10,000 households, within 2,200 locations throughout the United States and found that the top 10% made approximately 52% of the real estate purchases, whereas the bottom 40% made up only 8%. Home values have increased for the top tier by 73%, but only by 59% for the bottom since 2000. In the coming years, the report predicts that the rapid growth pace will stabilize, averaging 2.1% between 2012 and 2018.

While the numbers may tell the story, home buying tales from the average American is what really hits home.

Bloomberg spoke to an emerging homebuyer who expressed his concerns about being shut out of the housing market. As a young, single software support specialist, potential buyer Kirk Rohrig earns a good living of $55,000 a year and has an enviable credit score.

However, Rohrig can’t seem to find a home worthy of an investment because spending $200,000 only allows you to shop within the distressed property inventory. “Even fixer uppers are out of my range,” Rohrig, 33, said. “I went to look at a house that was garbage. There were cracks around all the windows and full condensation on the inside. It was on the market for $225,000.”

The problem occurring today is that when prices and rates were extremely low, first time homebuyers and those recovering from the economic hit were not in a position to buy.

Now that recovery has slowly transpired, low to medium-range income buyers seem to be priced out of the market. “Potential first-time buyers weren’t able to take advantage of the high point in affordability and the low point in prices,” Thomas Lawler, president of Lawler Economic & Housing Consulting LLC tells Bloomberg. “So the wealth effect of the recovery hasn’t gone to what could have been new buyers.”

The Problem With Mortgages

Even for those who want to purchase a fixer-upper, finding an affordable mortgage still presents an enormous hurdle. Although rates remain low, application rates among young buyers has only produced the sound of crickets lately.

Logan Mohtashami, a senior loan officer with AMC Lending Group told Bloomberg that he hasn’t pre-qualified a single application from a buyer under the age of 35 in 2014.

“They’re usually about 40% of buyers,” he said. “This year, it’s so quiet. They’re not even getting started in the process.”

Making matters worse, the Federal Housing Administration (FHA) loan program, which is typically a “go-to” platform for many new or struggling homebuyers has boosted fees and prices this year.

Now FHA borrowers must furnish an initial fee of 1.75% of the loan balance, plus up to 1.35 percentage points in annual mortgage insurance premiums. In light of these recent requirements, FHA first time home borrowers dropped by 38% from the peak period in 2010.

Finally, adding insult to injury, high credit scores are still in demand despite minor easing in recent requirements.

Before You Shop, Check With Your Credit Union

Despite doom and gloom news, first time and re-bounding homebuyers still have options. A number of credit unions offer 100% financing programs that don’t require private mortgage insurance (PMI) and these programs are often a favorable option over the new FHA product.

Credit unions like Navy Federal Credit Union (Vienna, VA) and NASA Federal Credit Union (Upper Marlboro, MD) both have standing 100% financing, no PMI mortgage loan programs.

Other credit unions provide not only mortgage programs, but also home buying or selling assistance such as CU Realty Services’ Home Advantage program at Tropical Financial Credit Union (Miramar, FL). Members who use an approved Realtor through the network can earn a rebate that can be applied toward closing costs and other expenses. Plus members can work with a real estate professional who knows the local market and how to match the buyer with the right property.

Doug Leever, Tropical Financial Credit Union’s mortgage sales manager told The Sun-Sentinel that credit unions are here to help those new and returning buyers to the housing market. "We do not want to get back into the same situation we had several years ago," with people buying homes they could not afford, Leever said. "But we have an open mind for the right scenario."

By Gina Ragusa
Published March 7, 2014
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