Hope May Be on the Horizon for First-Time Buyers



It’s too early to know for sure but some early indicators are emerging that show some relief could be coming to first-time buyers. That relief could include a combination of how Fannie Mae calculates credit scores, a few more houses coming on the market, and even a slight uptick in mortgage rates.

Fannie Mae Upgrades Mortgage Credit Evaluation Process

This could be a game changer for many first-time buyers because historically rental payment data has not been used in creditworthiness calculations. Yet, for first-time buyers, their monthly rent payment is their largest expense. Because most landlords don’t typically report on time or delinquent rent payments to the credit bureaus, Fannie Mae had to get creative to begin including this valuable information in the loan underwriting process.

Beginning September 18, 2021, Fannie Mae will allow recurring rent payments to deliver a more inclusive credit assessment. Because this data is not available on credit reports, it will come from the applicant’s bank statement data. This will be based on rent payments made by check or electronically, such as a company’s payment portal or other digital payment methods. Accessing the data will require permission from applicants. This should improve the loan qualifications of people with limited credit history but a strong rent payment history.

This will be a positive change for eligibility because only consistent rent payments will be considered. Missed or inconsistent rent payments are not expected to be a negative against the applicant. Instead, these gaps are assumed to have been paid by a method not captured by a bank check or electronic portal (cash, money order, credit card, etc.). This should benefit responsible renters that are hampered by insufficient credit history.

More Houses Possibly Coming on the Market

More houses coming on the market in the coming weeks can’t be certain but there are some early indicators. Namely, lower lumber prices and sellers recognizing their window of opportunity can’t last forever.

Lumber prices are still higher than many of us would like to see but there are strong signs of retreat. Futures contracts fell to $480 per thousand board feet of lumber last week. The good news is that was the 13th week with a consecutive drop in price. The price drop can be attributed to a big drop in demand after prices reached $1,100 per thousand board feet in June. At this point, we should be looking for the market to find an equilibrium between supply and demand. The risky news is that the run-up in lumber prices was mostly due to limited production during COVID-19 in both the US and Canada. The new surge in COVID could reverse the downward price trend. Also, the early demand has been for commercial projects and multi-family housing. The place to watch is for new permits to see if the demand flows over into single-family construction.

Stabilizing Home Prices and Interest Rates Ticking Up

As for sellers’ window of opportunity, Redfin CEO, Glenn Kelman, said last Friday that a slight cooling in home prices might be emerging. Over the past four weeks, about 5% of listings have had a price reduction and bidding wars are at their lowest point since January. There also appears to be a slight uptick in the number of new listings. But none of this means a switch has flipped to a buyers’ market.

The market was the hottest in April. The buyers’ market cooled a little after Labor Day as people began vacationing, attending graduations, family get-togethers, and other typical summer activities. Much of this was resuming normal activities as the pandemic declined (which is now resuming). A summer decline in active buyers is normal. What’s different is this year, is it was expected to be an extremely hot market that resembled the exceptionally hot late winter and early spring market. The hot summer market is here but not at the level that many experts expected.

Look at this as a possible cooling of the sellers’ market but still a long way from a buyers’ market. All cash offers and no contingency offers are still happening at an elevated level. But a slowing of bidding wars and a few price reductions indicate a cooling of the market.

Mortgage loan interest rates are also showing a slight trend upwards. In a very short two-week window, the average 30-year interest rates appear to have gone from 2.87% to 3.30%. This is driven by the strong employment numbers. However, higher interest rates will be a two-edged sword. Higher interest rates will quickly cause affordability problems for buyers. On the other hand, it’s likely to drive more houses onto the market if sellers recognize that their window of opportunity may be closing.

None of this suggests that a buyers’ market is right around the corner. It only indicates what we could see in the fall market, there might be changes coming.

It’s important to stay informed about market trends, consumer sentiments, and expert insights. Please share by leaving your comment.

Also, our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions, inquiries, or article ideas to askbrian@realtybiznews.com.

Author bio: Brian Kline has been investing in real estate for more than 35 years and writing about real estate investing for 12 years. He also draws upon 30 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, near a national and the Pacific Ocean.