Answering the Affordability Bell

With mortgage rates still above the 5%-mark and inflationary concerns continuing to tug at the bank accounts of most, affordability remains top-of-mind for most seeking to achieve the American dream of homeownership.

Despite a sudden “cooling of the market,” consumers polled by Fannie Mae continue to express pessimism about homebuying conditions, with only 20% of respondents reporting it’s a good time to buy a home. The Fannie Mae Home Purchase Sentiment Index (HPSI) also found that 81% of consumers believe the economy is on the “wrong track,” and also reported job stability concerns.

MReport had a chance to chat with Paul Buege, President and CEO of Pewaukee, Wisconsin-based Inlanta Mortgage regarding the state of the housing market.

A 30-year mortgage industry veteran, Buege joined Inlanta in 2013 as COO, and was named President and COO in 2018. He played a key role in advancing the use of Inlanta's Advisory Board, which is comprised of company leaders who are elected to three-year terms by all employees to ensure everyone has a voice in the direction of the company. The Advisory Board provides Inlanta's leadership team with valued guidance and input used in shaping the company's policies and strategies.

During Buege's tenure with the company, Inlanta was named a “Top Workplace” by the Milwaukee Journal Sentinel seven times.

Previously, Buege served in senior and C-level positions at national, independent mortgage banks. He began his career at Fleet Mortgage Corporation, where he was promoted several times. Fleet was later acquired by Washington Mutual Bank.

 

The housing affordability issue seems like a vicious cycle as inflation and the rise in rates are forces acting against first-time buyers looking to purchase. What needs to change to remedy this issue and break this cycle?
Buege: It’s hard not to notice the headlines: Everything we are reading and experiencing today points to increased prices for food, gas, housing, and rents. Affordability has everyone’s attention. Yet, as with many things in life, placing too much focus on what cannot be controlled can make the current situation seem more difficult. Instead, consumers should focus on the things they can control: their spending habits, their savings, and their credit profile.

Do you foresee housing affordability issues lingering throughout the remainder of 2022, or do you think the issue will extend beyond?
Buege: What makes today’s affordability issues even more difficult is that there are no short-term fixes to make the inflationary pressures we are feeling go away. And housing affordability may be one of the more challenging struggles.  We should remain hopeful because the forces of the market that have created the current housing environment will eventually run out of steam. Look for the housing market to settle in to a new normal by next year.

Besides renting, what are some options you would suggest to a buyer currently shopping in this ever-competitive market?
Buege: For the individual or family seeking homeownership, having a plan supported by an experienced Loan Officer and Real Estate Agent is essential. In today’s competitive housing market, it often makes sense to for potential homebuyers to meet with a Loan Officer even before they start looking for a home. That way consumers will know whether purchasing a home is feasible and if so, how much they can afford to pay. I think many people might be surprised to learn that they can purchase a home, particularly with today’s low-down payment mortgage options and the loans available for first-time homebuyers.

To tackle the housing affordability crisis, potential buyers need education and knowledge. Working with an experienced Loan Officer is key to understanding how rising rates can impact affordability. Getting preapproved is essential. It’s a critical building block in the home buying process and helps improve the consumer’s chance of success. A good Real Estate Agent working with a Loan Officer will help in setting expectations, they will provide solutions and ongoing guidance as the market changes.  The key is to understand there are two sides to the home purchase transaction—the mortgage loan side and the housing side. Flexibility is essential to achieve success in buying a home. Stay short-term focused, and adjust as needed over time.

Are downpayment assistance plans and first-time buyer plans feasible options to turn to in this market?
Buege: There are many options that can be used to increase affordability through mortgage programs that people may be unaware of. There are a number of loan programs for first-time home buyers including: no down payment USDA and VA loans, low down payment loans (HomePossible and MyCommunityMortgage), as well as jumbo and renovation loan options. There are also down payment assistance programs provided by government agencies or private organizations that you may qualify for if you’re a first-time home buyer. Working with a knowledgeable loan officer is the best way to find out what programs are available to you.

What advice would you give to a prospective buyer forced to sit on the sidelines due to affordability concerns?
Buege: Here’s an interesting statistic: 74% of renters want to buy a home but are afraid they won’t qualify, so they don’t even try! My advice? It can’t hurt to explore your options for purchasing a home. Homeownership may be more in reach than you think. It starts with speaking to a good loan officer to see what you may qualify for.

If you find you’re not in a position now to purchase a home today, then tackling affordability needs to be a personal choice.  Beyond interest rate fluctuations, consumers need to also pay attention to their spending habits, savings records, and credit histories. They are all connected in the journey to overcome the affordability challenges in today’s housing market. Trade-offs are always necessary for those working towards homeownership.

Consumers need to ask themselves the tough financial questions about their lifestyles. The answers usually provide ideas and ways to save more. What’s the most important to you? A fancy car or owning a home? Consumers should look at their choices in terms of all the decisions they make: Staying home versus dining out, paying off debt versus racking up more debt, and being disciplined about saving versus spending carelessly. All these daily decisions add up and can impact whether a consumer is able to purchase a home even more than interest rates or housing prices.

I always find it interesting to study the comparisons of “then versus now” when it comes to homeownership. “Back then” there were lower priced homes, much higher interest rates and considerably less earnings than today’s higher priced homes, lower rates, and higher earnings levels. Who had it tougher?  While home prices and rates will always continue to go both up and down, let’s agree that working towards homeownership always requires a plan, a goal and discipline.

Focus on what you can control and with a plan, homeownership can be yours in time.