‘The dream of homeownership is alive,’ says BofA’s head of retail lending. But for a lot of, it’s simply that — a dream

Despite the difficult backdrop, youthful generations usually are not giving up, stated Matt Vernon, head of retail lending at Bank of America. “The dream of homeownership is alive,” he stated. 

“While they recognize the challenges from an economic perspective, their desire for homeownership persists,” Vernon informed MarketWatch on an episode of Barron’s Live.

More than half of potential homebuyers deliberate to hurry up their house purchases, or purchase once they initially deliberate, the financial institution present in a survey of householders and renters in May. 

Some 62% of Generation Z consumers — born after 1997 — and 55% of millennial consumers — born between 1996 and 1981 — nonetheless had plans to purchase a house. 

Additionally, 40% of potential consumers informed Bank of America
BAC,
+0.82%
that they felt extra assured of their means to purchase a house at this time versus final yr, the report added. 

Hope vs. actuality of homeownership  

The present situations counsel a a lot grimmer outlook for the housing market, significantly for first-time consumers. In different phrases, want alone is not going to be sufficient. 

A Redfin
RDFN,
-0.96%
survey launched earlier this month stated that simply 18% of millennials and 12% of Generation Z stated they believed they’ll by no means personal a house.

They cited excessive house costs, lack of financial savings for down fee, amongst different elements. But they’d not given up fully on their dream of proudly owning a house.

The analysis additionally discovered that roughly 40% of Gen Zers and millennials had been all in favour of working second jobs to fund their down fee.

“Is it going to be more challenging? Do you need to be better prepared? And do you potentially need to think about how you go about accomplishing that dream? Sure,” Vernon stated.

High rates of interest, low credit score scores

With the 30-year mortgage charge now over 7%, many homebuyers and present owners trying to transfer or downsize discover themselves in a quagmire.

Higher charges add a whole bunch of {dollars} in borrowing prices. They additionally immediate owners to remain put, as promoting a house with a low charge and shopping for one other with a 7% mortgage appears illogical. 

More greater than half (51%) of BofA’s respondents cited excessive charges and residential costs as a problem when it got here to purchasing a house, and 37% cited low credit score scores and a scarcity of money.

There is a few hope: In its August forecast, Fannie Mae
FNMA,
+0.69%
expects the 30-year fixed-rate mortgage to drop to six.7% within the fourth quarter, and attain 6% by the final quarter of 2024. 

But there’s no assure that may occur. It’s onerous to inform if charges will come all the way down to that vary, BofA’s Vernon acknowledged, citing, “the lack of predictability in the market.”

“We’ll probably see some decrease in rates at a very limited level,” Vernon added, though he expects an extra decline in charges within the second half of 2024. 

Mortgage functions have fallen

Applications for mortgages from consumers and owners trying to refinance have dropped to the bottom stage in almost 30 years. “It’s a very challenging market,” Vernon added.

But not having a down fee could also be a blessing in disguise: solely 18% of shoppers stated it’s a “good time to buy a home,” in line with a current Fannie Mae survey, 

“Consumers remain pessimistic toward the housing market in general and home-buying conditions in particular,” Doug Duncan, chief economist at Fannie Mae, stated.

“We don’t see much upside to the index in the near future, barring significant improvements to home affordability, which we also don’t expect,” he added.

Buyers can look into down fee grants

Vernon instructed down-payment help packages for cash-strapped consumers. For occasion, many metropolis housing companies, nonprofits, and even lenders, provide such grants to consumers. 

Bank of America gives $7,500 in closing prices and a most of $10,000 in down-payment help.

But these consumers have to satisfy eligibility necessities equivalent to revenue and geographic limitations, and so they should take out a house mortgage with Bank of America. 

In New York, the town gives down fee help for certified house consumers that might complete as much as $100,000. It comes with a listing of necessities — from being a first-time proprietor to creating solely as much as 80% of the realm’s median revenue. 

Buyers in New York additionally must attend a home-buyer schooling course. If profitable, the consumers get a forgivable mortgage of as much as $100,000 towards down fee or closing prices on a brand new house.

In Florida, the state launched a ‘Hometown Heroes Program’ in June that gives as much as a most of $35,000 in down-payment and closing-cost help for consumers who qualify. 

To qualify, consumers ought to be working full-time with a Florida-based employer, and should purchase a main residence locally the place they plan to work. The program has extra particular advantages for “those who have served and continue to serve their country.”

When doubtful, ask. “Talk to your lenders about the grants that are out there,” Vernon stated.