Smaller Down Payments/Easier Loan Qualifications Change Mortgage Market

Housing prices have soared dramatically in recent years, in virtually all markets around the U.S. and in major markets around the world. Shortages of inventory and low mortgage interest rates combined with the fact that investors purchased large numbers of homes to place on the rental market have driven housing prices higher and higher. At the same time, new household formation surged, as many young people moved out of their parents’ homes and purchased or rented houses. The home sales and mortgage origination sectors fell apart in 2022 when interest rates soared due to government efforts to tame very high inflation. Higher mortgage rates make it more difficult for buyers to afford to purchase a home due to higher monthly payments. This recent rise in mortgage interest rates led to a drop in home sales. It also means slightly lower home prices in some previously booming markets.

According to the National Association of Realtors (NAR), sales of existing (not new) homes in America were 7.08 million units in 2005 at the peak of the last boom. For 2023, 4.2 million units were sold. In 2023, the median price of a newly built home had soared to $428,600, up from $336,900 three years earlier. This means that affordability has become a very significant issue, as higher prices mean both larger down payments and higher monthly mortgage payments. 2022-2024 increases in mortgage interest rates compounded this problem.

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Smaller Down Payments/Easier Loan Qualifications Change Mortgage Market, Business and Industry Trends Analysis

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