Attom Data Solutions’ Q2 Loan Origination Report showed that 39.1% of Seattle home purchases involved co-borrowers, compared to 22.8% nationwide. Co-borrowers are defined as non-married individuals applying together for a mortgage.
As Windermere Chief Economist Matthew Gardner explains it, this is because high prices are forcing borrowers to consider options such as parental assistance. But he adds that Seattle’s relatively substantial (14%) average down payment “can act as a cushion in the unlikely event that home prices start to reverse their substantial gains.”
(9/20 update: I ran the Seattle co-borrowing percentage by HomeStreet Bank’s Mark Hannum and he thinks it seems high, as most Jumbo and FNMA lenders don’t allow non-occupant co-borrowers. He does agree that with Matthew Gardner that borrowers often rely on parental assistance – for down payments. FHA does allow non-occupant co-borrowers, but out of Seattle’s 1,500+ single family home sales that took place in the last 60 days, only 22 involved FHA loans.)
This juxtaposes uncomfortably with Northwest MLS director George Moorehead’s assurance in NWMLS’ August press release that the quality of local home buyers will insulate us from real estate fallout. Apparently a significant proportion of these “quality” borrowers aren’t able to obtain loans without help.
As Mark Hanson points out, it takes 8-10% of equity to put a house back on the market, so a 14% average down payment isn’t as substantial of a cushion as it seems. It doesn’t take much downside before a homeowner is left with limited – or negative – available equity.
The question is, just how “unlikely” is it for home prices to recede?
Every quarter, Zillow surveys huge numbers of economic experts on their expectations for home price performance. The Q3, 2017 results are in. Between 2017 and 2021, the median expectation among 99 experts is a 19.33% increase in housing prices, but a handful of pessimists forecast declines. Mark Hanson, for instance, predicts a 24.47% drop!
Chief economists at Wells Fargo and PNC Bank are somewhat cautious: 14.02% and 16.57%. Windermere’s Matthew Gardner, too (14.43%); I was surprised by that. Equifax is upbeat (29.93% – but can we believe a word they say?), as is Professor David Wyss at Brown University (32.55%). But Professor Albert Saiz from MIT, my alma mater, has very conservative growth projections: just 5.47%.
What’s sobering is that 95 out of 99 respondents expect slower growth in 2018, and 93 expect the market to further worsen in 2019. By 2020, just one-fifth of the experts expect growth to re-accelerate. On the the bright side, 90% see an improvement for 2021.
Zillow gives out Crystal Ball Awards for experts who consistently offer accurate predictions. Jack Kleinhenz of Kleinhenz & Associates won big last year. He’s betting on consistent annual growth with only a slight tapering off in 2019 and 2020, with cumulative 5-year growth of 18.65%. Fingers crossed that he’s right again!