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Homebuyers Face Spring Sticker Shock
Diana Olick / CNBC / April 4, 2014
More potential buyers are out trolling the nation’s neighborhoods for their dream homes. Unfortunately, they are finding little to look at and, even worse, they are finding higher prices than they expected.
“People quite frankly came out and got sticker shock because they’re coming out to shop now, or they came out in January and February to shop, and they picked up the price sheet and saw, ‘Wow that’s way more than I thought’ because home prices had gone up so much in 2013,” said Brad Hunter, chief economist at Metrostudy.
While home prices are still well off their peak of the housing boom in 2006, it still costs the average homebuyer considerably more to buy a home today than it did then.
That is because mortgage lenders require larger down payments and higher incomes to support the debt. Despite the fact that the rate on the 30-year fixed mortgage is slightly lower than it was in 2006, it is now a far more popular product in the market, because all those “creative” mortgage products of the past are either gone or illegal.
Just 65 percent of mortgage originations in 2006 were fixed rate, while more than 95 percent of them are today, according to Black Knight Financial Services. In 2006, a buyer could put no money down on a teaser-rate loan with a rate as low as 1 percent for the first year. No more.
Rising mortgage rates and costs, tighter credit conditions, higher home prices. Add it all up, and affordability shrinks.
In fact, more than half the homes currently on the market in seven major American metros are currently unaffordable for local residents, according to a Zillow analysis of incomes at the end of last year with respect to mortgage and home value data.*
Among the 35 largest metros nationwide, more than half of homes currently listed for sale in Miami (62.4 percent), Los Angeles (57.2 percent), San Diego (55.3 percent), San Francisco (55.2 percent), Denver (52.8 percent), San Jose, Calif. (50.9 percent) and Portland, Ore. (50.3 percent) are unaffordable by historical standards, according to Zillow.