2021 Home-buyers Borrow in Droves
The housing market’s been hot lately (no surprises there), but just how hot?
Well, by way of example, 2021 saw more money change hands from lenders to borrowers for home purchases than ever before. Indeed, last year, lenders handed out over $1.6 trillion in mortgage loans, mostly to first-time home-buyers.
This record number surpasses both the $1.15 trillion mark reached back in 2005 (the height of the housing market bubble before the Great Recession of 2007-2008), and the $1.5 trillion number just two years ago, in 2020.
Last year’s uptick tracks the booming housing market, which has been stimulated by low interest rates, and a thirst among millennial home-buyers for more expensive residences. (They're primarily “thirty-somethings” who waited a bit longer to purchase a larger home, as opposed to the average 2-bedroom, 2-bathroom starters back in their parents’ days.)
In addition, a strong labor market (despite the pandemic) and increases in pay among numerous sectors widened the pool of potential buyers who could afford a mortgage payment – a trend further buttressed by rising inflation rates and a boatload of government stimulus being doled out to Americans. According to the Bureau of Labor Statistics, pay rose by 4.6 percent for private-sector workers in 2021, and it seems the real-estate market was one of the top beneficiaries of all that extra loot.
Mike Fratantoni, chief economist at the Mortgage Bankers Association, recently noted the operative psychological components: “Buying a home is really a statement of confidence in your job situation, your financial situation, your family situation.” And this sentiment clearly highlights the confidence of millennials (many of whom are discovering new revenue streams, previously unavailable prior to the advent of the internet and IPhone). Millennials represented 67 percent of the first-time mortgage applications between January and August of 2021.
And even though 30-year fixed mortgage rates are still very low -- hovering at just above 3% -- the market seems primed for a cool-down period in 2022; although, admittedly not by much. Any upcoming decrease in sentiment will most likely be attributable to the current prices of homes, (the average sales price rising by 19.1% in 2021), which have started to dissuade some buyers from signing a deal at a perceived “price peak,” and is slowly curtailing some of the dog-eat-dog buying antics which were widespread last Spring.
The Wall Street Journal reported that in October of 2021, 33% of the average income of a new homeowner was required to cover their mortgage payment – up 29% from earlier in the year – representing the most expensive mortgage/income ratio since 2008.
But while 2021 was a great year to be a seller, they say that water eventually reaches ts own level. So, the expected softening of pandemic constraints in 2022 (including labor shortages, supply-chain issues, lack of inventory, and financial considerations) should allow buyers a better shot to secure a home with more reasonable terms … unless they seek to be swallowed whole by their mortgage obligations.