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posted: 7/9/2016 6:01 AM

Despite low rates, market is tough on first-time buyers

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By Jim Woodard

Many prospective homebuyers are feeling frustrated. They love the super low interest rates of today's mortgages, but the rising prices and related qualification requirements are preventing them from making a purchase.

This dilemma was recently addressed in a report from the National Association of Realtors.

"Home sales will grow modestly this year, but a continuing inventory shortage will keep upward pressure on prices and make it hard for many people to buy, even though interest rates remain low. That's according to NAR chief economist Lawrence Yun.

"Yun predicted existing home sales will rise to 5.5 million at the end of the year, up slightly from 5.4 million last year. New-home sales will rise to 540,000 units from half a million, but because that segment of the market is currently so far below historical levels, the gains won't come close to closing the inventory gap, Yun said."

The NAR report pointed to the special problem experienced by first-time buyers in today's market.

"Most new homes are at higher price points, exacerbating affordability struggles for first-time and moderate-income homebuyers. Yun said larger homes are the most profitable for builders, who have to worry about meeting local ordinances and other costs. He added that most new homes come on the market at more than $300,000.

"The West saw home prices rise 35 percent over the last three years, making that the least affordable part of the country and dampening sales there, he said. While sales increased almost 20 percent last year in the Northeast, they dropped almost 10 percent in the West.

"Continuing low interest rates are a bright spot, but Yun warned that when inflation picks up, mortgage rates will follow suit."

Q. Do most people shop around for the best deal when selecting a new mortgage?

A. Very few do any real shopping. Here's a portion of a news release recently distributed by Zillow Real Estate:

"A home purchase is one of the largest investments most people make in their lifetime, yet on average, Americans spend just 8 hours researching their home loan, and obtain just four quotes from lenders, according to a new survey by Zillow.

"One in five (18 percent) of those surveyed spend an hour or less shopping for their home loan. More time is spent researching a car purchase (11 hours) and an equal amount of time researching a vacation (8 hours), despite the fact that these items cost just a small fraction of the average cost of a home.

"When it comes to spending money on our daily expenses, we all understand the value in taking time to shop around, compare product reviews online, or research retailers to ensure we are making a wise purchase," said Erin Lantz, vice president of mortgages for Zillow Group. "Yet surprisingly, very few prospective homebuyers apply that same diligence to choosing a lender and a home loan, despite the fact that is likely the largest purchase they will ever undertake."

Q. Are mortgage originations increasing?

A. Applications are rising slowly, according to the Mortgage Bankers Association.

"The refinance share of mortgage activity decreased to 52.8 percent of total applications from 52.9 percent the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 5.7 percent of total applications," it was noted in a news release.

Q. Considering today's rising rents, is this a good time to invest in multifamily housing projects?

A. A new service is offered by Freddie Mac that can help potential investors, as described in the following news release.

"How does investing in multifamily properties today compare to past quarters? Is it a favorable time to invest in multifamily properties? The New Freddie Mac Multifamily Apartment Investment Market Index is a free online analysis tool that combines key multifamily-specific economic indicators to spot trends and provide insight into investment conditions in select major metros and nationally over time.

"It is important that investors and other industry stakeholders stay on top of the shifting multifamily investment environment with the latest trend analysis and market insight that AIMI provides," said Steven Guggenmos, vice president of Freddie Mac Multifamily Research and Modeling.

• Email Jim Woodard at storyjim@aol.com.

© 2016, Creators Syndicate

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