3 things homebuyers should do to hack the unaffordable housing market, according to Fannie Mae's chief economist

jsor@businessinsider.com (Jennifer Sor)
·3 min read

  • There are three ways homebuyers can play the housing market to their advantage, according to Fannie Mae.

  • The firm's chief economist gave his top tips to first-time homebuyers in a recent interview.

  • The housing market remains supply-constrained, which has pushed up home prices, he said.

The housing market is historically unaffordable, but according to Fannie Mae's lead economist, prospective buyers can do a few things to make things to get a leg up.

Doug Duncan, chief economist of the government-sponsored mortgage finance giant, noted the challenging environment for first-time homebuyers, with mortgage rates hovering near 20-year highs and a dearth of inventory keeping home prices elevated.

The 30-year fixed mortgage rate has been stuck around 7% all year. Single-family home prices, meanwhile, climbed 7.4% in the first quarter.

"Supply-constrained," Duncan said of the housing market, speaking to Yahoo Finance on Thursday. "That's been a theme for several years, it's kind of repeating the story, but it's the story."

Duncan outlined his top tips for homebuyers in today's market:

1. Have a good credit score

Mortgage rates are elevated, and having a poor credit score makes borrowing costs even steeper, Duncan said.

"No matter who you talk to, there's different kinds of lenders. All of them are going to look, first of all, at what's your credit? Do you have a good credit score?" he said. "They want to know, what's your risk profile?"

Real estate economists say mortgage rates likely won't come down significantly anytime soon. Mortgage rates are influenced by real interest rates in the economy, and Fed officials aren't in a rush to cut rates while inflation remains above their target and the economy remains strong.

2. Shop around with multiple lenders

Homebuyers should talk to multiple lenders before locking in their mortgage. Buyers who shop around tend to score better deals and more affordable rates, Duncan said.

"Make them compete. They don't make money if they don't make a loan to you, so they have an interest in satisfying you, just like you have an interest in getting a good deal. So shop around for sure," he added.

3. Don't try to time the market

You be in the market for a home because you can afford it at the moment — not because you're waiting for prices or mortgage rates to come down, Duncan said.

"What I always give people as advice when they ask, 'Is now a good time to buy a house?' is if you have a family budget or a household budget. That's the most important clause, because any lender is going to ask you things that's going to come out of that budget, and if you can budget it all out, you know how to immediately answer those questions and you'll get a better deal at the end of the day," Duncan said.

People betting that mortgage rates or home prices will come down soon are taking a gamble. Some homebuyers can afford to speculate on the market, but most first-time homebuyers cannot, Duncan noted.

"You want to take a well-educated financial management approach to that decision because you'd like to be able to sustain it," he said.

First-time homebuyers accounted for 32% of all home sales in 2023, well below the historical average of 38%, according to data from the National Association of Realtors.

The good news is that some real estate experts see a recovery slowly forming for the housing market. Supply is expanding and home prices are starting to fall in key metros, Charles Schwab said in a recent note.

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