Market changes suggest there may be a discord between prospective homebuyers and homeownership opportunities available to them.
More than half of active and casual homebuyers watching out for good deals in the 12 months ahead see the present as an ideal time to purchase a home, according to LendingTree reports from late June.
At first glance the finding bodes well for lenders looking for new business opportunities. But a deeper analysis unveils challenges originators need be aware of and deal with to ensure more of these potential homebuyers actually turn into homeowners in the near future.
According to a LendingTree survey, while the homebuyer market is comprised of 57% first-time buyers, compared to 43% experienced buyers who already own a home, traditional obstacles such as
A more stable housing market and more accessible financing created a unique window of opportunity for buyers and sellers, said Doug Lebda, founder and CEO of LendingTree.com.
“Increasing home prices are providing would-be sellers with the confidence needed to take action, while rising interest rates are placing a sense of urgency on potential homebuyers,” while home prices and rates are still reasonably affordable, he said.
Demand, however, differs by age group and geography. On average, active homebuyers are 34 years of age “and much younger than their casual counterparts” whose average age is 40. Prospective buyers in Midwestern states appear to have had a stronger sense of urgency compared to other regions in the U.S. The survey found that at 50% these home shoppers have the highest proportion of active homebuyers in the nation, compared to Northeastern states with the fewest at 36%.
As expected, the survey shows financial obstacles impede casual homebuyers from becoming more serious home seekers. For example, among casual homebuyers and those intending to start searching for a home within 12 months, 23% have been waiting for their household’s economic situation to improve and another 20% have to save more money for a downpayment, while for 27% of experienced homeowners the ability to sell their current home has been the only obstacle stopping them from more actively searching for a new one. Motivations range from financial benefits of owning versus renting for 42% of the respondents, more space and upgrading for 32%, and relocating for 24%.
While many lenders are looking at products that make equal sense to them and their customers whose primary concern is downpayment and affordability are harder to accommodate, there appears to be more opportunity for lenders operating in the jumbo loan market.
For example, earlier this year CashCall Inc. started originating fixed interest rate jumbo mortgage loans and plans to stay away from adjustable-rate loan products.
The Anaheim, Calif.-based online niche product lender specializes in no-closing-cost purchase and refinancing loans for borrowers with good to excellent credit. To make lending even more affordable CashCall said it will offer jumbo mortgage options at interest rates that will not exceed 4%. This “lowest possible mortgage rate,” said president J. Paul Reddam, means borrowers will have access to products that previously “have only been provided by larger banks” or institutions catering to higher-profile customers. Mortgage loan limits are set at $2 million. Qualifying requirements include a 70% loan-to-value ratio and a minimum FICO score of 720. Requirements are less demanding for loan amounts of up to $1.5 million that are offered at an 80% LTV and a minimum FICO score of 700. CashCall offers 10-, 15- and 30-year term loans on the fixed-rate loans and 15- to 30-year term refinancing loans.
The independent banker acts as a conduit that provides lower rates and faster loan processing times to the borrower, Lebda said, so homebuyers can take advantage of the window of opportunity created by still-low interest rates.
