Overcoming Housing Affordability Hurdles

Mortgage rates rose yet again this week, hitting 5.55% according to Freddie Mac’s weekly Primary Mortgage Market Survey (PMMS). Rates did take a slight break last week, dipping down to 5.13%, but after a 42-basis point rise in one week, the trend of inconsistency in mortgage rates continues. 

For perspective, a year ago at this time, the 30-year fixed-rate mortgage averaged nearly half that, sitting at just 2.86%. 

The ripple effect on all of this is the reality that an increasing number of prospective home buyers are forced back to sidelines, priced out of a housing market they are desperately attempting to enter. 

And while forced to retreat from their journey on the path to homeownership, some will live with their parents or other siblings to stash away funds for the future, however, most remain in the rental market, yet another hurdle to overcome for individuals looking to save to achieve the American dream. 

Realtor.com's latest Monthly Rental Report found the rental price advantage of living in the suburbs vs. urban areas has shrunk by 52.9% compared to three years ago, as the U.S. median rental price hit its latest all-time high in July 2022 of $1,879, as landlords adjust to renter budgets impacted by inflation. 

"Whether in a downtown area or suburb, staying put or making a change, renters are stuck between a rock and a hard place when it comes to affordability,” said Realtor.com Chief Economist Danielle Hale.  

When will this cycle end? No one knows for sure, but MReport had the opportunity to chat with David Abelyan, Founder of Cake Mortgage, to get his insight on the state of the market and where it is headed to close out 2022.  

At the age of 15, Abelyan’s cousin took him to work at a local mortgage brokerage, and David sold his first loan that day. From 2008-2016, David spent his time learning the craft of the mortgage finance expert, becoming a mortgage expert, eventually moving on to becoming a top producing Loan Officer at PennyMac.  

In February of 2019, David left PennyMac and just seven months later, he founded Millenial Home Lending (MHL) in September 2018 with just two employees, David comprising the sales team, and another employee tasked with cold-calling customers.  

To date, MHL has funded 11,300-plus mortgages for $3.5 billion in volume, and now boasts more than 150 team members. In November 2021, MHL re-branded and changed its name to Cake Mortgage Corporation.  

The housing affordability issue continues to be a vicious cycle, as inflation and the volatile nature of mortgage rates are forces acting against first-time buyers looking to purchase. What needs to change in order to remedy this issue and break this cycle?
Abelyan: More programs that are sponsored by the government, interest-only with low LTV, 40-year amortization, and 50-year amortization programs. Private sector non-QM programs unfortunately cannot compete with Fannie Mae and Freddie Mac products.

Do you foresee housing affordability issues lingering throughout the remainder of 2022, or do you think the issue will extend beyond?
Abelyan: It is going to continue to get worse, as interest rates continue to rise, supply chain issues persist, and inflation continues to tick upward.

Besides renting, what are some options you would suggest to a buyer currently shopping in the current mortgage marketplace?
Abelyan: Do not be afraid of moving to a different area to get a starter home that is affordable.

Are downpayment assistance plans and first-time buyer plans feasible options to turn to in this market?
Abelyan: Not really because any seller that sees downpayment assistance, or a first-time home buyer will unconsciously discriminate against that borrower. That has been my experience doing purchases for the last five-plus years. Most of the time, their Realtor will advise that it is not a strong offer, even though the percentage put down is not an indication of a stronger offer, but Realtors/sellers just think more money down equals a stronger buyer. The same thing applies for FHA (Federal Housing Administration) and VA (Veterans Affairs) loans, not just downpayment assistance. It is going to be much tougher using those programs in this current market.

What advice would you give prospective buyers who are forced to sit on the sidelines due to affordability concerns?
Abelyan: Continue being smart with your money and save. Explore different geographical areas to purchase to get your foot in the door. It is much better to move and buy a home and at least bank the appreciation based on inflation alone, than continue to sit on the sidelines.