As interest rates and inflation rise, the housing market is shifting. For North Dakotans of limited means, including many buyers who are pursuing homeownership for the first time, that shift means the time to assess their options and create strategic offers is eroding.
The table below, published by Realtor.com in February, depicts the impact of rising interest rates with two down payment scenarios, 10% and 20%. The January 2022 national median home asking price of $375,000 is used as the baseline.
The monthly payment on a 30-year mortgage for a $375,000 home with a 10% down payment is $1,364 using the December 2020 rate of 2.67%. The payment increases to $1,525 once the interest rate is adjusted to the January 2022 average of 3.55%. In the second example, using the 20% down payment, the monthly payment increases from $1,212 to $1,356. As interest rates and the cost of goods rise, more money is required to come out of the buyer’s pocket each month. For buyers who don’t have the additional funds, their price point shrinks.
North Dakota Housing Finance Agency (NDHFA) recently published its 2021 Annual Report. Last year, 1,371 households used the agency’s FirstHomeTM program. The average purchase price of $189,363 was much lower than the national average. The average age of the borrower was 32 with annual earnings of just under $60,000. The most interesting marker of changing times was the percentage of borrowers using purchase assistance (i.e., down payment and closing cost help). Historically, over NDHFA’s 40 years of existence, 43 percent of borrowers used this assistance. In 2021, the number was 83 percent.
While NDHFA’s Homeownership Division is looking forward to a more manageable workload as the number of homeowners re-financing drops, the agency expects to see more demand for its homeownership programs. On average, NDHFA’s interest rates are a quarter to half of a percent below market rates, providing buyers with greater purchasing power, and the available purchase assistance truly opens doors for some individuals and families to be able to own their own home.
I continue to repeat myself, but the success of our homebuyers is based on the partnerships NDHFA has with local lenders and real estate agents. We do greatly appreciate the work they do on our behalf, and we took time at our February Homeownership Forums to recognize nine of our partners with Champion Awards for going above and beyond. They help NDHFA not only make homeownership affordable, but for many households, their support makes it possible.