THE BIG SPLASH

Side Hustles for Homeownership

As mortgage rates continue to rise, millennials and Gen Zers are turning to side hustles and creative strategies to save for down payments on homes.

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• With the average 30-year fixed mortgage rate hovering between 6.5% and 7.23%, double the rates seen in 2020 and 2021, many are feeling the pressure of high home prices and down payment requirements.

• A recent Redfin study found that two in five Gen Zers and millennials are taking on side gigs to bolster their savings for homeownership.

• Side hustles have become increasingly common among these generations, with nearly 40% of U.S. adults in these age brackets reporting having a side gig.

• While some pursue these endeavors for discretionary spending, a significant portion view them as essential for covering everyday expenses.

• Innovative approaches to saving for a down payment include the emergence of "first-home funds" on wedding gift registries, with 16% of couples establishing such funds in 2022.

• However, despite their creative efforts, many millennials and Gen Zers struggle to envision homeownership due to factors like high mortgage rates and home prices, as well as difficulties in saving for down payments.

• While challenges persist, tax incentives and first-time homebuyer programs can offer financial relief, and real estate professionals advise these younger buyers to consider a more affordable starter home as a stepping stone toward their dream home.

• Despite the hurdles, half of millennials have achieved homeownership, showing that determination and strategic planning can pave the way to owning a home.

A SCOOP OF REMOTE WORK

As companies gradually shift back to in-office work, a survey by Redfin reveals that 10.1% of prospective movers are selling their homes due to return-to-office policies.

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• During the pandemic, remote work prompted many to move away from large cities to purchase homes in more remote locations.

• However, as more firms are requiring employees to return to the office at least a few days a week, some are faced with a tough choice: sell their homes or risk job loss.

• This dilemma has led to instances where people are selling their homes, even if they purchased them just a year ago at the peak of the housing market, such as in Boise, Idaho, a popular destination for remote workers.

• For example, a couple who work for the same company were told they must be in the office three days a week or risk losing their jobs. They now face the prospect of taking a substantial loss on their home.

• The return-to-office trend has been observed in companies like Amazon, Apple, Alphabet, Goldman Sachs, JPMorgan, and Meta, among others.

• Adding to the complexity of this situation is the fact that mortgage rates have doubled in the past year to over 7%, further limiting affordability for potential homebuyers, especially in higher-priced urban areas.

A SCOOP OF MORTGAGE

Mortgage demand has hit a low not seen since 1996, largely due to rising mortgage rates. The Mortgage Bankers Association reported that total mortgage application volume fell 0.8% compared to the previous week.

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• The average contract interest rate for 30-year fixed-rate mortgages also rose to 7.27%, further impacting demand.

• Refinancing took a significant hit, dropping by 5% for the week and plummeting 31% compared to the same week last year. As a result, the refinance share of mortgage activity declined to 29.1%, a stark contrast to 2020 when it stood at 63%.

• On the flip side, applications for mortgages to purchase homes increased by 1% week to week but were 27% lower than the same period last year.

• The use of adjustable-rate mortgages (ARMs) rose, as potential buyers explored options to reduce their monthly payments. ARMs offer lower interest rates but are considered riskier because their rates are fixed for a shorter term.

• High mortgage rates have led to minimal refinance activity and less motivation for homeowners to sell and purchase new homes at higher rates, according to Joel Kan, an economist at the Mortgage Bankers Association.

• Mortgage rates remained elevated at the beginning of the week, with potential changes dependent on the Consumer Price Index data release.

A SCOOP OF FORECLOSURES

A surge in foreclosures initiated by homeowners' associations (HOAs) in Denver highlights the pitfalls of a common homeownership model. Many residents are discovering the immense power held by HOAs to impose escalating fines for seemingly minor infractions and enforce missed payments through measures as drastic as foreclosure.

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• HOAs are increasingly prevalent in the United States, with around 74 million people, nearly a quarter of the population, living in community associations, predominantly HOAs.

• These organizations create their own regulations, aiming to maintain neighborhood aesthetics and property values while collecting dues and assessments to support community expenses. When homeowners fall behind on payments, HOAs can turn to the courts to collect.

• The absence of national regulation governing HOAs has led to significant disparities among states, with some granting HOAs more extensive collection privileges than local governments.

• In certain cases, HOAs can even file "super-liens" that take priority over other property liens, including first mortgages, increasing their power in foreclosure proceedings.

• Colorado recently enacted legislation to reform HOA practices, including prohibiting foreclosures solely based on fines and capping maximum fines for violations. However, the impact of this legislation remains under scrutiny.

• The Mendoza family's story serves as a stark example of homeowners who found themselves facing foreclosure due to HOA fines, leading to calls for more comprehensive regulation of HOAs in the real estate industry.

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