Locked-Out Of FOMO Rush, Would-Be Buyers Delay Dreams
As FHA and VAA homebuyer share shrinks, a torrid market decouples from a materially-important domino-effect buyer pool. What's left is a discretionary universe of prospects with cash.
There's headline risk and there's headline risk.
One out of two resale homebuyers who took out mortgages to buy in April 2021 put down 20% or more as a down payment. One out of four, per the National Association of Realtors, paid all cash.
The data is evidence of cash's power in an overheated seller's market that has reached a crescendo.
It's also evidence of risk to a foundational dynamic of housing normalcy, which is that true market equilibrium levels the playing field for people who have less to put down but can be regarded as equally-worthy homebuyers, providing they're willing to pay more for their debt.
The market, especially since late 2021, has been anything but in balance.
The optics – and, to read stories like the Wall Street Journal's "For Many Home Buyers, a 5% Down Payment Isn’t Enough," by staffers Nicole Friedman and Ben Eisen, the stark reality – say that "the little-guy" would-be buyer may as well forget about his or her access to the American Dream of homeownership in today's market.
Friedman and Eisen write:
In such a housing market, sellers can often choose among multiple offers. Cash buyers have an advantage because they don’t need to secure mortgages, which can make the transaction go faster. Sellers sometimes worry that offers with smaller down payments are likelier to fall through during the loan-closing process, agents say.
Many borrowers who can afford only small upfront costs get loans insured by the Federal Housing Administration or the Department of Veterans Affairs. In an April NAR survey of real-estate agents, 27% said sellers were unlikely to accept an offer with an FHA or VA loan, and another 6% said sellers would refuse such an offer. These loans are less attractive to sellers because they have stricter closing conditions, real-estate agents say.
Less than one in 10 home purchases these days comes with an FHA loan, according to Attom Data Solutions latest U.S. Residential Property Mortgage Origination Report:
Mortgages backed by the Federal Housing Administration (FHA) accounted for 338,214, or 9 percent of all residential property loans originated in the first quarter of 2021. That was down from 10.6 percent in the fourth quarter of 2020 and from 12.6 percent in the first quarter of 2020.
Residential loans backed by the U.S. Department of Veterans Affairs (VA) accounted for 317,605, or 8.4 percent, of all residential property loans originated in the first quarter of 2021, down from 8.5 percent in the previous quarter and 10.1 percent a year ago.
The conclusion, it's strongly inferred in this narrative and many others we're seeing now, is the opposite of The Door's anthemic call to action in one of summertime's all-time classics, Light My Fire.
"The time to hesitate is ... " now.