As home prices in the suburbs and rural regions across America soar to record-highs propelled by a mass exodus out of downtown city centres, it appears that Americans eager to purchase a home amid the pandemic will now have to fork up a greater amount of money for a down payment amid a sudden tightening of credit standards.
According to a report compiled by Attom Data Solutions and cited by Bloomberg, the median down payment for a single-family home rose by 69% from the third quarter 2019 to $20,775 in Q3 2020 – the highest in nearly two decades. The sudden increase in down payment costs over the past 12 months points to a shift towards the side of caution among lenders amid an increasingly worsening economic outlook.
Lenders have become less optimistic about borrowers as a virus resurgence plagues the country, resulting in further social distancing measures and lockdowns. This will likely lead to a further impediment on economic growth heading into the fourth quarter and early 2021, with the potential of even a double-dip recession. Indeed, the rising worry regarding an increase in delinquencies is not far-fetched, especially if economic activity leads to an additional rise in unemployment levels across the country.
As a result, JPMorgan Chase has recently tightened its borrowing terms, as the bank’s loan officers were instructed to limit large loans to only 70% of the sale price for condos and co-ops in Manhattan. In the meantime, loan applications have skyrocketed amid record-low interest rates and a surge in migrations to the suburbs and rural communities. This sudden shift in home-buying behaviour in turn has enabled mortgage companies to earn significant margins and rake in copious amounts of cash amid the pandemic.
Information for this briefing was found via Bloomberg and Attom Data Solutions. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.