STAFF REPORT
According to a report from Porch, the residential real estate market is seeing signs of cooling off after two years of high competition and fast-rising prices — and while younger home buyers across the U.S. may continue to struggle, those in Texas might be easier off.
The millennial generation — Americans ages 26 to 41 — are currently in their peak homebuying years. According to recent data from the National Association of Realtors, they represent 43% of buyers.
Amid higher prices and recent interest rate hikes, demand is leveling out. While the market was at peak competition, this made it challenging to outbid buyers who had more resources at their disposal. Now, with home prices at a historic high, many young buyers are being priced out of the market altogether.
Young buyers also tend to have less saved up to put towards a home and lack existing home equity to help finance a purchase.
To overcome these challenges, some have relied on older friends and family members with more financial resources to act as a co-signer on their mortgage loan. Co-signers are people who agree to be responsible for loan payments if their primary signer defaults, and are especially helpful to young buyers in more expensive housing markets.
Because co-signers’ financial resources and credit history are also evaluated as part of a loan application, this helps buyers with low incomes, more debt or a patchy employment history to increase their likelihood of qualifying for a loan and receiving lower interest rates or higher approval amounts.
Young buyers appear to be relying on older co-signers simply to enter the housing market, rather than using co-signers’ financial assistance to purchase more expensive homes.
Due to the relationship between home prices and the presence of a co-signer, states in the west and northeast that tend to be more expensive also tend to have younger buyers rely on co-signers more often. In contrast, more affordable states in the southeast and central U.S. have fewer young homebuyers with a co-signer.
To determine states with the highest percentage of young homebuyers with an older co-signer, researchers at Porch analyzed the latest data from the Federal Financial Institutions Examination Council’s Home Mortgage Disclosure Act. They ranked states by their percentage of young homebuyers (34 years old or younger) with an older co-signer (55 or older).
Texas was found to rank 17th in the fewest young buyers utilizing an older co-signer:
• 0.775% of young buyers have an older co-signer
• $225,000 is the median property value for young buyers with an older co-signer, while $265,000 is the median property value across all young buyers
• $30,000 is the median down payment for young buyers with an older co-signer, while $20,000 is the median down payment across all young buyers
In comparison, in the rest of the U.S.:
• 0.915% of young buyers have an older co-signer
• $295,000 is the median property value for young buyers with an older co-signer, while $285,000 is the median property value across all young buyers
• $40,000 is the median down payment for young buyers with an older co-signer, while $30,000 is the median down payment across all young buyers
While there has been a decline of pending home sales, online searches, showings and mortgage applications, many experts anticipate a rebalancing in the market over the next year.
The full analysis can be found on www.porch.com/advice/young-buyers-relying-older-co-signers-buy-homes.
