The housing market has recovered from the crisis of 10 years ago like it never even happened. National home prices have surpassed their prior peaks, and homebuyers are faced with bidding wars as inventory is low. These challenges are more onerous for first-time homebuyers who do not have the advantage of another home to sell (that has likely appreciated) to help with funding the down payment for a new home. It’s not all doom and gloom though, and some cities have more favorable conditions for first-time buyers than others.
In a new study, Lending Tree decided to rank the best cities for first-time homebuyers in the nation’s 100 largest cities. The factors that made a housing market favorable were:
Average down payment amount. The big initial pile of cash is something most first-time buyers struggle with and takes years of savings for many.
The share of buyers using an FHA mortgage. Buyers using FHA financing are required to put down as little as 3%, and have higher limits on the debt-to-income ratios. These and other loan features increase the likelihood of being approved for a mortgage while still getting competitive mortgage interest rates.
Average down payment percentage. Lower down payments increase access for first-time buyers. Down payments are one of the main obstacles to home ownership, as many renters can afford the monthly mortgage payment.
Percentage of buyers who have less than prime credit (below 680). First-time buyers often have lower credit scores than repeat buyers so are more competitive in areas without as many prime borrowers.
The share of homes sold that the median income family can afford (Housing Opportunity Index). Many cities have become too expensive for the median family. This measure of affordability in our ranking elevates cities that are still affordable for median income families.
Average FHA down payment as a percentage of average down payment for all loans: The lower down payment for FHA loans is more valuable in some areas than others. This measure of the FHA benefit tells us how much FHA borrowers truly saved on down payments.
Lending Tree ranked the following cities the top 10 most accessible:
Little Rock, Ark.
Grand Rapids, Mich.
Source: Lending Tree
What Happened to Rates Last Week?
Mortgage backed securities (FNMA 3.50 MBS) gained +9 basis points (BPS) from last Friday’s close which caused fixed mortgage rates to move sideways for the week.
Overview: Mortgage backed securities sold off for much of the week on higher inflationary data (bonds hate inflation) but we got a nice (and temporary) bounce on Friday due to parking over the long holiday weekend with the world’s two largest economies shut down (U.S. and China).
Inflation? You bet. The Consumer Price Index readings for January were higher than expected with the Headline YOY CPI hitting 2.1% vs est. of 1.9% which is a big beat. Core (ex food and energy…everything that actually matters) CPI YOY increased by 1.8% vs est. of 1.7%. The Producer Price Index readings for January were double than expected when looking Core PPI MOM (0.4% vs est. of 0.2%). The YOY PPI Headline data hit 2.7% vs est. of 2.5%.
In another inflationary report, Import Prices MOM jumped by 1.0% vs est. of 0.6% and the prior month was doubled from 0.1% to 0.2%. YOY, Import Prices were up by 3.6% vs est. of 3.0%.
Retail Sales: The headline data was disappointing. January was lighter than expected (-0.3% vs est. of +0.2%), plus December was revised lower from 0.4% down to 0.0%. When you strip out Autos, Retail Sales were flat at 0.0% vs est. of a gain of 0.4%.
Taking it to the House: The NAHB Sentiment Index remained at 72 which is an extremely high reading and was not impacted by rising mortgage rate expectations. New Housing Starts in January were much higher than expected with 1.326M vs est. of 1.234M. Building Permits were also stronger than expected (1.396M vs est. of 1.300M). SFR were basically at the same pace as the prior month, the beat was due to a surge in Rental Properties which is not good news for the housing market.
Jobs, Jobs, Jobs: Initial Weekly Jobless Claims matched expectations with a low 230K reading. The more closely watched 4 week moving average is still below 230K with a 228,500 reading.
Philly Fed: Their February Business Outlook Survey jumped to an extremely high reading of 25.8 which handily beat out expectations of 21.1. New orders, at 24.5, are surging and unfilled orders, at 14.5, are piling up fast. Hiring is so far keeping up, at 25.2.
Consumer Sentiment: The Preliminary February University of Michigan’s national survey was red hot with a reading of 99.9 vs est. of 95.5. The one year inflation expectations were at 2.7%, the 5 to 10 year outlook was at 2.5%.