The Characteristics and Challenges of Today’s Homebuyers (EventID=116995)

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Connect with the House Financial Services Committee Get the latest news: https://democrats-financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/HouseFinancialCmte Follow us on Twitter: https://twitter.com/FSCDems ___________________________________ On Wednesday, March 20, 2023, at 2:00 p.m. (ET) Housing and Insurance Subcommittee Chairman Congressman Davidson and Ranking Member Congressman Cleaver will host a hearing entitled, “The Characteristics and Challenges of Today’s Homebuyers." ___________________________________ Witnesses for this one-panel hearing will be: • Dr. Michael Fratantoni, Chief Economist, Senior Vice President, Research and Industry Technology, Mortgage Bankers Association (MBA) • Dr. Jessica Lautz, Deputy Chief Economist and Vice President of Research, National Association of Realtors (NAR) • Ms. Nikitra Bailey, Executive Vice President, National Fair Housing Alliance ___________________________________ Summary This hearing will continue the Committee’s work on the housing affordability and availability challenges facing American families. It is designed to review the changing conditions of the U.S. single-family housing market, both in terms of borrower characteristics and behavior as well as recent trends in the financial details of those transactions. Achieving a better understanding of the current profile of the market can assist policymakers in responding to shifts in single-family housing purchaser demand and evaluating options to better balance demand with available resources. Background and Changing Conditions The housing market has undergone a seismic shift since March 2022, when the Federal Reserve began raising its interest rate benchmark to combat the effects of aggressive inflation. Today, the 30-year fixed rate mortgage rate is near 7 percent for most borrowers. This is a far cry from the previous two decades of the Federal Reserve’s accommodative interest rate environment that helped fuel the housing bubble that led to the Global Financial Crisis of 2008. During that crisis and subsequent recovery, as well as the global health and economic crisis caused by the COVID 19 pandemic, mortgage interest rates remained historically low. In 2000, mortgage interest rates fell below 8 percent. Later, in 2011, rates fell below 5 precent where they steadily remained before falling below 3 percent for much of 2020. This prolonged period of low interest rates enabled millions of homebuyers to enter the market and spurred multiple rounds of refinances for borrowers as rates consistently dropped. However, the picture is very different today driven primarily by higher rates and elevated home prices. As a result, there are fewer and more selective borrowers in the purchase market executing fewer transactions as they react to the conditions of what many believe to be the new normal in housing. Inventory shortages persist across the country: over two million fewer existing homes have been sold this year on an annualized basis compared to their peak in 2021. Tighter supply has kept prices high, as today’s household grapples with a median home price that is about six-times the median household annual income. Further, since housing is the single-biggest slice of the family budget, accounting for over 33 percent, high housing costs are a significant driver of inflation.4 Today’s Market: Transactions and Purchasers There are two basic measures of single-family housing market activity, homes purchased by new owners and existing mortgages being refinanced by the same owner. For new home purchase transactions, there were 661,000 homes sold in January 2021 according to the U.S. Census Bureau, compared to a peak of approximately one million homes sold in a single month in mid-2020. The median sales price of a new home today is about $420,700, notably higher than the median price of about $328,000 in 2020. On the refinance side, Freddie Mac reported that refinancing activity in 2023 was “the lowest in almost 30 years.” That report goes on to theorize that the “decline in refinance activity is a direct result of higher mortgage interest rates [because] most homeowners locked-in low rates relative to current market rates.” First-time homebuyers made up a robust share of about one-third of sales in 2023, an increase from 26 percent in 2022 and on-par with historic norms. Other demographic changes include an increase in the age of both first-time and repeat buyers, and an uptick in the share of diverse, nonwhite buyers, according to the National Association of Realtors. Unsurprisingly, today’s homebuyers tend to have higher incomes. The median income of a typical homebuyer rose to $107,000 last year, up from $88,000 in 2022, illustrating how middle-class Americans are increasingly priced-out of homeownership. Down payments grew... ___________________________________ Hearing page: https://democrats-financialservices.house.gov/events/eventsingle.aspx?EventID=411286