The Housing Market Nightmare: How We Got Here and How Credit Unions Can Help

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When thinking of the American dream home, we often think of the multi-bedroom home with several bathrooms and a beautiful kitchen. Of course, there’s a large yard for the kids and pets to play in, with a white picket fence around it, right?

Well, you better keep dreaming because houses are scarce in this market and those that are available are much more expensive than they were a few years ago. They are swept away in a matter of minutes, leaving buyers scrambling for anything—even those that fall far short of the American dream home (and often more expensive than said dream home). 

In short, the current housing marketing can be summed up in three words: “competitive, expensive, and unforgiving.”

Breakdown of the current housing market struggles

“But why,” you ask? How did we get here? Once upon a time, buying a home was as simple as a few thousand down on a credit card.

There are three main reasons for the market: rising rent prices, the pandemic, and what Fortune calls the current “intergenerational housing war.”

Rising rent prices and the pandemic

As of June 15, 2022, according to Rent.com, the average national average rent price for a one bedroom apartment is $1,722 with a year-over-year percent change up to 25.5 percent. Two bedrooms will run you $2,047, up 26.8 percent. This is a significate increase for renters, which gives them even more incentive to find a house.

However, the pandemic has influenced renters’ ability to find houses—for better or worse. While some were able to save money during the shutdowns by staying in rather than going out, others, due to shutdowns and potential job loss, struggled to pay their rent or mortgage at all. This left many floundering at rising rent prices and a nightmare housing market. Temporary government policies helped with these struggles, but now those policies have ended leaving some better off and some not.

The pandemic also had a few side effects that lent to a growing need for housing. During the shutdown, many decided to have children or adopt animals. Furthermore, remote work options from the pandemic have developed into working from home full time or hybrid schedules. These examples are just some, but the effect is the same: bigger families and more people working from home who need space to do so. All of this means more competition in the market, further driving up prices and increasing the housing shortage.

Generational competition

Speaking of competition, we haven’t even touched on the intergeneration impacts on the housing market. With millennials (and even older Gen Z’ers) now entering the housing market, the competition for homes has increased between homebuyers. According to Fortune, millennials currently account for “43% of all homebuyers so far in 2022,” and are currently buying homes more than “any other generation, and their share of the home buying market is only growing, up from 37% last year.”

Millennials are not the only generation looking for homes. Older generations, such as baby boomers, make up a 29% share of the home buying market. These older generations are either getting ready to retire or have already retired, and along with having their children grown and moved out, are looking to either downsize to a smaller home or purchase a starter home in popular suburban areas. This causes stiff completion for first-time homebuyers.

Whereas younger generations are just now getting into the market, the older generations have either the knowledge, income, or assets to outbid these first-time homebuyers. Some of these assets include real estate assets. According to a recent study by credit building company Self Financial, “the average net worth of baby boomers absolutely dwarfed that of millennials, with the gap in real estate assets alone standing at over $11 trillion.”

Housing shortage

With this in mind, there is a record low house inventory. The Credit Union National Association (CUNA) notes that where the U.S. typically has three million homes for sale the current market has a mere 900,000. The shortage of inventory causes prices to increase as well. Housing prices will continue to rise and CUNA expects home prices to “rise 9% in 2022 due to strong demand from millennials—consumers in their prime home-buying years—and low housing inventory.”

These factors are not even considering the increase in inflation and supply-chain issues that have affected current house inventory and the building of new homes. Currently even building houses due to soaring prices of materials has caused construction costs to increase resulting in increased prices for these new homes.

How can credit unions help?

So where do credit unions fit into the housing market nightmare? With all the struggles homebuyers are facing, it is now more important than ever for credit unions to lend a helping hand to their members!

Offer financial literacy to first-time buyers

Credit unions can help in a big way by providing financial literacy, especially to first-time home buyers, along with providing all the options of mortgages and programs that can ease the burden. While researching, most of the information I found was from realtors and financial magazines. Information from credit union blogs or articles was not easily accessible or did not provide any information other than contact information.

Furthermore, digesting any information buyers find can be a struggle in itself. There is a lot of information out there, but it is not detailed or educational enough to help clear the fog. Providing the process, best practices for putting down an offer, lender information, and explaining how their credit scores and income affect their chances would be a terrific way to start!

Even diving into their current debts and simple ways to improve their credit score can help so much for a first-time home buyer. Most of these processes are provided by realtors either through meetings or even blogs, but that does not mean your credit union can’t be a resource and help with that gap of information.

Provide resources

Other ways to provide information can be on government-backed programs or grant options. Bankrate notes that there are assistance programs that many cities, states, and non-profit organizations are using to “help to make homeownership more accessible,” like the Good Neighbor Next Door program. If the homebuyer works in public service professional fields such as teaching, first responders, or law enforcement, and is planning to buy a home in an urban development area they can get a discount of up to 50 percent on a home with a down payment of just $100.

Other government programs like this for homebuyers not in those professions include the USDA which has a mortgage guarantee program for those buying a home in a designated rural area. These loans don’t require a down payment, but borrowers must meet credit and income requirements to qualify, and, in some cases, be a first-time homebuyer. There are also VA loans for military service members, veterans, or surviving spouses.

Even if your member does not qualify for any of these options, making sure they know all that is out there in a clear way will help. This can help the homebuyers to know all their options, help them with the life of their loan, and help the relationship with their credit union. This can also lead to other loan options like refinancing or home equity loans later!

Credit unions being able to provide this type of information on their websites, blogs, articles, classes, and webinars will improve the overall member experience or potential homebuyer experience. Building these relationships makes your credit union more knowledgeable about what home buyers are facing, and helps your members, community, and the housing market.

Lending strategies

Credit unions aren’t simply educational resources for their members though, we are lenders ourselves. What type of loan offerings do you have available to your members, especially those looking for lower down payments? What methods do you use to identify a member’s lending ability? Do you have programs to help first-time buyers with less-than-stellar credit scores? If a member cannot qualify for your mortgage types, help them figure out what steps they need to take in order to qualify. As credit unions, our responsibility is not simply to approve or deny, but to support and educate.

Be a guide for your members

For buyers, the current market is a nightmare, and there is little indication it will improve in the near future. But buying a home does not have to be a confusing and exhausting endeavor. Credit unions can and should play a role in supporting their members through the process. From providing financial literacy, action steps, and resources, to offering mortgages themselves, credit unions have a responsibility to be more than a simple lender.

With a good credit union behind them, every member can get a little closer to that dream house.

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