Low inventory has pushed home prices upward in high-demand areas, but buyers seem undeterred. The most recent report from the National Association of Realtors revealed that almost half of the homes sold in May were purchased after less than a month on the market, demonstrating the strong interest in homebuying sweeping the country.
The increase in home prices is largely due to first-time homebuyers, and could signal a shift toward increased homebuying in certain regions. Tight inventory in the most desirable markets has driven prices up rapidly, and makes it difficult for these buyers to participate. In the most heated markets, such as San Francisco, homes are regularly selling for far more than their list prices, the SFGate reported. This makes the region untenable for young buyers who require less expensive homes and broader loan options.
Where millennials can buy
The rapidly increasing cost of homebuying in popular regions will push a significant amount of purchase activity to cities where prices are lower and supply can keep pace with demand. The majority of loan growth in these regions will likely be related to low down payment options. In the past year, the number of loans to first-time borrowers has exploded. A recent Equifax study found that mortgage originations to first-time buyers were up 79.9 percent between the first quarter of 2014 and Q1 2015.
"Originations to first-time buyers were up 79.9 percent."
The areas that are most likely to see a sizable increase in purchase activity are generally located in the middle of the country. Using a formula that calculated affordability based on a 5 percent down payment and the average millennial income for a region. Zillow discovered that young buyers will have the best luck purchasing homes in areas such as Akron, Ohio, Des Moines, Iowa; and Omaha, Nebraska.
A regional uptick in new loan origination
The availability of affordable homes in these areas that have yet to experience rampant price growth, combined with the availability of lending options that young people can afford, has the potential to increase home sales and dramatically boost new loan originations. These areas have not experienced the rampant price growth seen on the coasts that was partially a result of extensive foreign investment.
With years of experience in correspondent lending, Impac Mortgage Corp. Correspondent specializes in the purchase of residential loans from mortgage bankers, credit unions, community banks and regional banks, including alternative solutions for those who are underserved by traditional lenders.