New Federal Housing Administration data show a greater share of homebuyers — many of them first-time homebuyers — need help from family members to come up with their down payments. It’s a sign of how increasingly unaffordable buying a home in the U.S. has become.
In fact, more than a quarter — 26% — of FHA mortgage borrowers got financial help from family for down payments in fiscal year 2018, up from 22% in 2011. That’s according to an annual report from the U.S. Department of Housing and Urban Development on the state of the FHA program, which predominantly serves first-time homebuyers.
Although U.S. census data have shown that home ownership rates among Americans have declined overall since 2006, rates among those younger than 35 — the group most likely to be first-time homebuyers — are particularly low. Economists have suggested several theories for this, including the huge student loan burden that millennials face, along with rising rent costs.
A rise in first-time homebuyers turning to their families for help with down payments could put a strain on the U.S. housing market, which saw a lackluster 2018. However, there are also new signs of life in the market, as some mortgage rates appear to be declining — meaning now may be the best time in nearly a year for first-time homebuyers to enter the market.
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What’s the background?
The FHA is a federal agency providing mortgage insurance on loans made by approved lenders across the U.S. FHA-insured mortgage loans heavily serve first-time homebuyers. With down payments for FHA-insured loans as low as 3.5% compared to as much as 20% with more traditional mortgages, the program gives many first-time buyers a much-needed leg up.
But while that might seem like a nice break for new homebuyers, the problem is that many of today’s first-time home seekers — a good number of them millennials — face other hurdles including student loan debt and rising rent costs, making it tough to save enough money even for a reduced down payment. The added financial burdens on millennials might explain why a growing number of buyers are seeking assistance from family members to buy homes.
What does this mean?
Even though a rise in down payment assistance for first-time homebuyers might sound like trouble for the U.S. housing market, according to a report in The Wall Street Journal, industry observers don’t seem particularly concerned.
According to the Journal report, in the view of those who watch the housing market, borrowing from family members poses less risk than borrowing from home sellers — a common practice leading up to the housing crisis that has now mostly stopped.
That’s because borrowers feel more of an obligation to protect their relatives’ investment in the event of a faltering housing market, sources told the Journal.
What happens next?
Despite data indicating that first-time homebuyers are struggling to afford down payments, there are signs the U.S. housing market may become a bit more welcoming in the near term.
Recent Freddie Mac data show that rates for 30-year fixed-rate mortgages are at their lowest in eight months. Additionally, the rate of growth for housing prices has slowed.
If these two trends continue into 2019, first-time homebuyers may find that this year is a good time to consider making their dreams of home ownership a reality.