Ken Morris: Its becoming increasingly difficult to be a first-time homebuyer – The Macomb Daily

In years past, the spring sunshine and warm weather brought out home shoppers. I hear from local relators that theres an inventory shortage. There are more home buyers than there are houses for sale.

On average, national housing values appreciated substantially year over year. Many experts anticipate the trend will continue. It might, but I question how much longer housing values can continue to escalate.

For a number of years, mortgage rates have been well below 4 percent. But with benchmark interest rates increasing, its likely that mortgage rates will follow suit and soon exceed 4 percent. While thats a favorable rate in my opinion, I wouldnt be shocked if mortgage rates moved well beyond 4 percent.

Even though theyre still relatively low, theres a problem beyond mortgage interest rates in the housing market. Thats especially true for first-time homebuyers. Most tend to be young people, just launching their careers.

Historically, young people scrimped and saved for a down payment. If a new homebuyer could come up with 20 percent, they likely qualified for a mortgage. In more recent years, as mortgage lending became more flexible, you could qualify for much less than 20 percent.

In fact, all the traditional ways of buying an initial home seem to be going by the wayside, and its hurting the first-time buyers. How? Well, theres a lot of competition for what are often called starter homes. And some parties that are not first-time buyers are making it even more competitive.

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Its difficult enough with starter homes in short supply. But now, individual investors and even corporations are entering the market, with the intent to flip the homes for a profit or rent them out. A large number of buyers and a shortage of inventory obviously lead to higher prices.

And it gets worse for first-time buyers. If youre selling a home and you had an offer from young people with a mortgage and an all-cash buyer, which would you choose? Keep in mind that a mortgage requires a home inspection and cash buyers can waive the inspection requirement.

I think its quite likely that most sellers would prefer the all-cash deal. And equally likely that first-time buyers would not have all cash.

There was a time when owning a home brought pride. It was the great American dream come true. But things are rapidly changing and the dream appears to be fading away. Were becoming a nation of renters.

But even that is problematic.

Have you seen the cost of renting an apartment or house lately? If not, youre in for a shock. Just like home prices, rental prices have gone through the roof. And escalating prices arent the only issue in the housing market.

It appears the pandemic has generated an increasing number of foreclosures. Thats not surprising because the government protections that were implemented to help people remain in their homes are beginning to wear off.

I cant predict how a large number of foreclosures will affect the housing market, but I suspect it will be more volatile than experts anticipate.

Is it possible that skyrocketing interest rates and home prices might create a bubble? Only time will tell. But if youre looking to buy a first home, you might want to take that time.

Securities offered through LPL Financial, Member FINRA/SIPC. E-mail your questions to kenmorris@lifetimeplanning.com. Ken is a Registered Representative of LPL Financial. Ken is Vice-President of the Society for Lifetime Planning. All opinions expressed are those of Ken Morris. LPL and Society for Lifetime Planning are independent companies. Investing involves risk including loss of principal. No strategy assures success or protects against loss.

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Ken Morris: Its becoming increasingly difficult to be a first-time homebuyer - The Macomb Daily