The American dream used to include owning your own home.
But a reader survey found one in five millennials
believe that they'll never be able to own one.
So joining me now is Mark Hamrick, who's a senior economic analyst at bank.
Great to help us understand how first time home buyers can succeed
in this challenging housing market.
Mark. How tough is it out there for home buyers right now?
Very tough. Good to be with you Kristen.
And we think, you know, we're at bank rate,
we're very much focused on interest rates and mortgage rates
being the relevant component with respect to this conversation.
And we think back about how at the end of 2021 the average for
a 30 year fixed rate mortgage was about three and a quarter percent.
The bank rate weekly average last week
7.80%.
So the impact of that on a typical monthly payment
could be an increase of anywhere between 30 40 50%.
And of course, we've had relatively stable if not r
rising home prices of late as well.
So that has really delivered a gut punch to housing
affordability by one measure the worst of many decades.
Uh And so, you know,
I appreciate uh seeing the results of your uh survey there because it
does indicate that there's remains a lot of interest in buying a home.
And I applaud you and others who are focusing on saving and not,
not talking about you here,
but others who would be in the risk category of getting out over
their skis on affordability because anyone who has ever owned a home,
uh can
that once one owns a home that is an opportunity to spend more money on maintenance,
repair and all those other things.
And that gets back to our bank rate surveys that have found
that more people need to have emergency savings. And when one owns a home,
uh you'll need to have that emergency savings, uh fully funded as well, right?
Ok. So let's talk about your savings goals. If you do want to own a home someday,
how do you set up these goals? And what should they be?
Well, what I would say, first of all,
Kristen is that our goal with respect to buying a home and the earlier part
of that being saving enough for a down payment really needs to uh play well,
so to speak with our other financial goals.
And so what would those be, those would be saving for retirement, paying down debt,
particularly high cost debt, like credit card debt, paying that off if we can
and then funding emergency savings as we said.
And then I would say we're targeting essentially a
potential down payment of as much as 20%.
Uh But there are programs out there to help
among others.
First time home buyers, members of the military, first responders,
people moving to rural areas to pay as low as 3% down.
But one thing I want to caution here
and this is consistent with my earlier comment about
emergency savings is that if one is really
stretching here to get into a home purchase,
we don't want to get into that situation where all of a sudden, yes,
you cross that threshold and that threshold when you walk into the home is one
where you're really stressed in the sense
of meeting all those other financial goals,
which as we say will include having to pay for the plumbing repair or, you know,
redoing the roof at some point if you're there long enough.
Yeah.
Yeah, I'm told those costs can really add up and quite quickly mark to your point
for anyone who is saving to buy a home. What's the best place to put that savings?
So it is safe and protected but perhaps can
earn you some money on your money saving journey.
Well, the good news here as we've discussed before,
Kristen is now that we've sort of waived.
Goodbye for the foreseeable future wave.
Goodbye to the low and record low interest rate environment,
the returns on savings across the spectrum here
are the best we've seen in many years.
And I would want to have my savings in an insured account,
probably a high yield savings account
that
and provide 34 5% plus in terms of annual return.
Typically, you would want that in a liquid account, one that you can get to.
Although if your timeline with respect to purchasing the home is more than,
let's say, 6, 12 months out, certainly you could look at a certificate of deposit,
but again, the keys are making sure that
a federally insured account, uh, so that, uh,
you will not be parted from your money
because of an unpredictable event and then that,
uh, you'll get a good return on that, uh, over time.
So that, that principle will rise.
Any other boxes mark that our viewers would need
to check before they consider buying a home.
Well, I really do think the long term affordability of the home purchase is key.
Uh We're in an uncertain environment in so many ways.
I feel like we've been saying that for years now and, you know,
it seems like you just go through a weekend and there's a new,
new source of uncertainty which we had
develop here.
But, uh the other part of that is, you know,
do you have reasonable confidence that you have job security so that
there's not an interruption in your income if you're part of a
marriage or a relationship? Uh the same for your spouse.
If they're going to be helping to fund that purchase,
uh look at bank rate uh among other sources for uh programs that
would help uh home buyers for low down payment or uh assistance programs,
employers sometimes will provide some assistance in home buying as well.
So achieve all of your financial goals. Don't forget that you need to do that.
And then, you know, with some persistance uh sticking at it, uh, this can be done.
And I would mention Kristen, you know,
going back and looking at the historic record of where interest rates,
mortgage rates have been over,
let's say the last 40 50 years where we are right
now is actually pretty consistent with that long term average.
It's just that in a sense we've been spoiled with
the low rates of the last number of years.
Yeah.
What about for first time home buyers mark what assistance programs exist for them?
Well, there are a plethora, there is a plethora of programs that are out there.
It could be the conventional 97 mortgage that is, uh for the loans coming from.
Fannie Mae and Freddie Mac.
Uh,
there are other programs FH a insured that can help you
get in with essentially a 3.5 or 10% down program.
Uh, va programs are out there for vet
and their surviving spouses, those who have either served or currently serving.
There's a hud program called the good
neighbor next door program can actually help you
get into a home purchase at 50% off if it's a hud owned home.
So I would just say simply do your research, uh, go to a place like bank rate.
Look at those, uh, mortgage affordability calculators
work with a mortgage calculator to play around with the numbers in terms of.
Well, how about if I put this much money down versus that much?
Because the other part of that is
the downside,
so to speak of putting less money down is
that you're financing a larger part of the purchase.
And that means that your monthly payment is going to be all that much more higher.
So that gets back to that. Does this really work for us? Kind of a question?
All right, Mark Hamrick, a great insight as always, Mark. Thank you.