Five years ago, when a real estate agent advised my wife and me to make an offer on a house we had seen only once − at night − and were unsure about, I thought she was being ridiculous. Today, I concede that she was being pragmatic because buyers significantly outnumbered sellers.
We bought another home before it was listed, happening to spot the “Coming Soon” sign out front. That was my preview of the housing shortage. Then COVID-19 supercharged the national housing crisis.
You may know the rule of thumb not to spend more than 30% of your income on housing. Redfin calculated that only 15.5% of homes bought last year would have a mortgage costing less than 30% of local median income, a record well below the pre-pandemic norm.
A new report from Harvard’s Joint Center for Housing Studies found that in 2022, a record half of U.S. renters were “cost burdened,” spending more than 30% of their income on rent and utilities. About 27% of renter households spent more than half of their income on housing.
The root cause of this financial hardship is a shortage of homes, although some housing advocates question or deny that reality. But the housing shortage is a literal shortage. We can see it from various pieces of evidence.
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Housing price index is at near record high
America built far fewer homes in recent years. U.S. private home construction crashed before the 2008 mortgage crisis (measured in total units). Only in late 2021 did it climb back up to its pre-Great Recession peak.
Homebuilding is rebounding, but we have a lot of catching up to do. The Case-Shiller housing price index sits near an all-time high.
The median age of first-time homebuyers also is near a record high, at 35.
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Investment firms have owned many multifamily buildings for decades. They now are buying a significant number of houses because they expect a continued shortage to boost those properties’ values.
Economists argue about inflation and minimum wage laws, but they overwhelmingly agree we have a housing shortage. “Place the Blame Where It Belongs,” declared a recent Urban Institute report on the shortage. Economists are still figuring out how to measure it, but various estimates place the national shortage of homes in a broad range, from 4 million to 20 million.
Rising rents trigger increase in people without stable housing
It was a moment, not a number, that finally convinced me of the housing shortage. I started an all-volunteer housing advocacy group in 2021 and about a year later was invited to tour a homeless shelter. A staff member explained that rising rents had increased the local population without stable housing, and that the shelter struggled to find available homes to place its clients in.
I have since heard the same thing from staff at other shelters in my state. I have also heard chilling stories about residents of my city living in unsafe, overcrowded conditions.
Low supply lets landlords jack up rents. It prevents people from leaving abusive partners. It forces California college students to sleep in their cars.
The housing shortage is all too real. Only building many more homes will make housing affordable again.
Luca Gattoni-Celli is a Young Voices contributor and the founder of YIMBYs of Northern Virginia. Follow him on X @TheGattoniCelli
As mortgage interest rates slowly tick down, who are today’s home buyers and what motivates them to make a purchase?
A recent National Association of Home Builders analysis of the latest American Housing Survey provides insight into recent home buyers and the home buying process. Conducted in odd-numbered years by the U.S. Census Bureau, the 2021 AHS studied 10.2 million households that bought a home in the previous two years.
Of these households, 40% were buying their first home, while 7% were purchasing a new home. In general, new home buyers are older, make more money, and are purchasing bigger, more expensive homes. On the other hand, first-time home buyers are younger, make less money, and are purchasing smaller, less expensive homes.
Home buyers said the top two reasons for choosing a home were “for a better home” (60%) and “a better neighborhood” (49%). Household formulation was third. More first-time home buyers reported forming a new household as the top reason for moving compared to buyers who purchased new homes seeking a better neighborhood.
The survey also asked about the size of homes and found that newly built homes tend to be larger. Nearly a quarter (24%) of new homes were between 1,500 to 1,999 square feet, and 23% were between 3,000 to 3,999 square feet. Compared to newly built homes, homes purchased by first-time buyers tend to be relatively smaller, with 31.6% homes between 1,000 to 1,499 square feet. The median size of new homes is 2,334 square feet, while the median size of homes bought by first-time buyers is 1,669 square feet.
Saving money to purchase a home is an important part of the process. The survey results provided insights on how much money buyers allocated to downpayments. NAHB analysis found that half (50%) of all buyers had a downpayment of 0 to 20%. Only 18% purchased their home without a downpayment. Among all recent home buyers, first-time buyers had relatively smaller down payments. A majority (82%) of first-time home buyers put no more than 20% down.
As single-family home construction expands this year and interest rates become favorable, many individuals and families may start planning to buy a new home.
Mike Thomas is 2024 president of the Building Industry Association of Stark & East Central Ohio.
It’s a new year, and if your resolution is to finally make the leap into homeownership, this might be the best time to do it.
In 2024, there is expected to be more predictability and stability for potential homebuyers. Additionally, Zillow predicts that more homes will hit the market this year, as more homeowners who locked in all-time-low mortgage rates may put their homes up for sale, growing tired of waiting for such low rates to return.
“I do believe we’re going to get back to a normalcy of the market where people are going to buy, sell, rent and relocate based on what’s going on in their life,” said Rob Norman, eastern region president of Coldwell Banker Realty, based in New Jersey. “I don’t think we’re going to be as shocked or surprised by what’s going on in the market, as perhaps we were in the past.”
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Many first-time buyers don’t even know the steps they need to take to begin the process. If you’d like to buy your first home in 2024 but don’t know where to start, don’t be intimidated. Here’s a look at how the homebuying process works:
Save for a down payment
Ensuring you have money tucked away before starting the homebuying process is important.
Down payments are a percentage of a home’s purchase price, so the amount you’d need to pay for a down payment largely depends on the price of the home you’re looking to purchase. A 20% down payment is traditionally what’s recommended, and the more you’re able to put down means the less you’d have to pay each month for your mortgage.
While this is recommended, it doesn’t mean you actually have to have that much saved up. According to a 2023 study from the National Association of Realtors, the median down payment for homebuyers across the country is just 14%. Additionally, many loans today require a much lower percentage to qualify, such as 3% for some conventional loans and 3.5% for FHA —Federal Housing Association — loans.
Get preapproved for a mortgage
It’s important to get preapproved for a mortgage before you start house hunting so you know exactly what you can afford, and to save time later in the process.
This requires submitting income verification, like pay stubs, tax returns and bank statements, to a lender, as well as looking at your debt-to-income ratio.
“You have to get preapproved by a mortgage professional,” said Betti Russo, a broker sales associate with Keller Williams Prosperity Realty in Wayne and Oakland. “It’s to be able to know exactly what you can afford. You might think you can afford more than you can or you might be shortchanging yourself and thinking you can afford less than you actually can. The preapproval is going to really dig deep and tell you exactly what you can afford.”
Russo said that in today’s market, it’s important to act quickly when you find a house you love. Getting preapproved also means that you’ll be ready to submit your best offer right away, giving you the best chance at securing your property. Because houses are leaving the market so frequently, she said there’s no time to waste.
Not only will getting preapproved help you understand what you can afford, it’ll also give you a better idea of how much you’ll pay for other homebuying fees. This includes closing costs, which typically cover property taxes, insurance and fees from various entities.
Explore potential neighborhoods
Once you know how much house you can afford, you’ll have a better understanding of what areas you can consider buying in. Russo said she always recommends that homebuyers take the time to visit and explore areas they’d consider buying in to make sure it’s the right fit for them.
“Just because there’s a beautiful house there and the price fits within your budget doesn’t mean that you’re actually going to love living in that area,” she said. “You want to pick an area that talks to who you are as a person, what you like to do and how close you want to be to certain things.”
Would you rather more of a city or a suburban environment? Are you a commuter who needs easy access to public transportation? Would you like to be within walking distance of certain amenities? Russo said these are just a few factors to consider when picking a location.
Map out your wants versus your needs
Chances are, you’re not going to find a home that comes with everything you want right off the bat. So, it’s recommended to write a list of what features you need, as well as what features you want, but can survive without for the time being.
“The things that are your must-haves are concrete, and your wants should be like ‘I would like this someday, and maybe the house doesn’t have it right now, but I can change this about the house down the road,'” Russo said. “You don’t have to have everything right away, especially if you’re a first-time homebuyer.”
Certain aspects about the property can’t change, such as being too close to a highway or having a small backyard, but cosmetic things, like carpeting and kitchen cabinets, can be updated at any time. Russo said figuring this out and knowing what you want in advance is necessary to give yourself the best chances at securing your home.
“It’s a very, very big sellers market still, so homebuyers don’t have time to waste,” she said. “They need to do a lot of preparation in order to be able to get the home that they want. They need to figure all of this out in advance so that when you step into a home, you either want it or you don’t want it. And if you do want it, you have too act very quickly, there’s no time to think about out.”
Find a realtor
While you’re not necessarily required to work with a realtor to find a home, having one does make the process easier.
Because buying a home involves a lot of moving parts, such as finding homes for sale, writing up offers, making edits to the contract and ensuring other parties are prepared, having a realtor will alleviate some stress, especially for first-time buyers.
Additionally, realtors often have a network of trusted people like real estate lawyers and building inspectors, meaning they’ll be able to recommend other individuals that you may need to consult during the process.
Russo said that just because one person had a great experience with a particular realtor doesn’t mean they’ll be the best fit for you. She said it’s important to find someone that you can mesh with, especially because you’ll be working so closely with one another.
“I think referrals are really good and knowing somebody that has worked with the agent before and that they’ve had a good experience with them. Online reviews are also great,” she said. “Experience is not always the answer, but experience is definitely a good answer. You can pick the most experienced agent in the area, but you could have a serious personality conflict or just don’t like their style. Just because they’ve sold the most homes doesn’t mean they’re the best fit for you and your needs.”
Do your research to find a realtor that is familiar with your desired area and that you feel will be able to fulfill your needs.
Make an offer
Russo said that when making an offer on a house, you want to put your best foot forward because you might not get a second chance.
“You need to be prepared to go in with your best foot forward. I always ask people, ‘What’s the house worth to you? How are you going to feel if you don’t get it?'” she said. “Obviously besides your budget, that’s going to determine how strong you go in with an offer.”
Russo said to also remember that money is not the only factor involved in making an offer. Things like how soon you can close on the home and whether you’re willing to waive an inspection also play a role.
“You need to be very flexible in your demands and do whatever you can to make the seller happy, whether that be offering a quick or flexible closing based on the seller’s needs or offering inspections for information purposes only,” she said. “Just make it really easy for the seller to accept your offer.”
Maddie McGay is the real estate reporter for NorthJersey.com and The Record, covering all things worth celebrating about living in North Jersey. Find her on Instagram @maddiemcgay, on X @maddiemcgayy, and sign up for her North Jersey Living newsletter. Do you have a tip, trend or terrific house she should know about? Email her at MMcGay@gannett.com.
Scott Williams is CEO of Ohio REALTORS.
Headlines over the last few months from around the country and from right here in Ohio have made it clear that we are facing a startling reality: Homeownership is out of reach for far too many Americans.
Rising prices, high interest rates and housing shortages have made this part of the American dream, simply, unattainable, especially for adults under the age of 35. Those adults are postponing homeownership — in some cases, by as much as a decade as compared to 2013. Many are choosing to forego homeownership entirely, calling themselves “forever renters.”
This is not would-be homeowners’ fault. As recent news stories show, median home values have nearly doubled in the last 10 years. At the same time, household incomes grew by only about 13.5%.
More than white picket fences
Each and every one of us should be alarmed by these data points.
Homeownership is not just a white-picket-fence veneer. For many people, it provides the foundation for stability, security and a sense of community — things that renting often cannot supply. Owning a home builds equity and wealth. Homeowners can deduct mortgage interest and property taxes from their income taxes and benefit from appreciation when they sell or pass it on to the next generation.
Having an asset to borrow against provides financial flexibility. And while rents might go up, monthly mortgage payments generally remain stable over decades, helping homeowners manage housing costs during retirement.
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Higher homeownership rates benefit communities, too.
More homeowners mean more stable property tax revenues to fund public services. Engaged homeowners tend to demand quality schools, parks, libraries and public safety. Home ownership incentivizes people to have a long-term outlook, to invest in their property and neighborhoods.
But times are challenging for would-be homeowners. Interest rates are high. Inventory is low. Prices seem to be ever-increasing.
Headlines across the country describe this, and while housing challenges used to primarily affect large cities on the coasts, it is clear that in communities across Ohio, we must take action to ensure those who want to own a home are able to.
Home ownership does not have to be a thing of the past
Part of that happens at the community level, and this is where everyone — each and every one of us — can play a role. It is imperative that we support policies that foster easier paths to homeownership. That means more development, greater housing density, and zoning updates that permit things like accessory dwelling units.
And part of it happens through state programs and policies that ease the path for homeowners.
The most recent of those programs, launched in January, is Ohio Homebuyer Plus, which makes it easier to save for a down payment, and is something we at Ohio REALTORS advocated and pushed for. The program allows Ohioans to deduct up to $5,000 in down payment savings contributions from their state taxes each year and helps to grow that money with higher interest rates than traditional savings accounts — right now, 2.59% on top of a bank’s ordinary savings rate.
Ohio Homebuyer Plus|New state program offers down payment help to Ohio homebuyers
This program, we think, amplifies and supports existing programs that can help Ohioans buy a home, and that’s where knowledgeable, experienced Realtors can help. Not only do great Realtors bring expertise in local markets, but they also understand incentives and policies that can smooth the path to home ownership. And in Ohio, that expertise has maybe never been more important.
Recent news stories showed that Cleveland, Columbus and Cincinnati are among the top housing markets for 2024.
Making homeownership easier benefits all of us, by making our state a more attractive place to live, work and play, and by strengthening our communities.
I would agree that homeownership is not for everyone, and renting certainly makes sense for some, particularly during certain phases in life. But I have seen that smart policies and programs can help make homeownership more accessible. And when we do that, we all — individuals, families and communities — benefit.
Scott Williams is CEO of Ohio REALTORS.
Generations of consumers have embraced homeownership as part of the American dream. Lately, though, it looks more like a pipe dream.
“Housing is becoming a luxury good,” said Christopher Mayer, a Columbia University economist.
The upside? It’s a great time to rent. The spiraling costs of homeownership have turned the perennial rent-vs.-own equation on its head. In most of the nation’s largest cities, renting is now far cheaper.
The median sales price for existing homes rose more than 40% from early 2020 to mid-2022, to a seasonal peak just above $400,000, according to the National Association of Realtors.
Prices are still rising: The median sale price for an existing home was 4.4% higher in December 2023 than in December 2022.
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Mortgage rates, meanwhile, are twice as high now as in early 2022: 6.8%, as of mid-February, compared to just over 3% at the start of 2022.
Taken together, those two trends yield frightening math.
Rising mortgage rates should have pushed home prices down. They didn’t
Imagine you bought a $400,000 home, and you made a 20% down payment.
At 3.2% interest, your monthly principal and interest on a 30-year mortgage would have totaled $1,383, according to a Bankrate mortgage calculator.
At 6.8%, the same mortgage would cost you $2,086.
“It’s the least affordable housing market in recent memory,” said Daryl Fairweather, chief economist at Redfin.
Rising interest rates slowed the upward march of home prices, even leading to small declines in some months. Yet, the seller’s market has endured. Here are some reasons:
- Developers haven’t been building enough new homes to keep up with demand.
- The covid pandemic and remote work boom seeded even more demand, as workers sought larger homes.
- Homeowners with historically low mortgage rates don’t want to sell.
“It’s kind of the perfect storm, if you’re a consumer,” Mayer said. ‘“Perfect storm’ in a bad way.”
Homeownership has long been regarded as a rite of passage
The prohibitive costs of home purchase are reshaping common wisdom about the merits of homeownership.
Americans have long regarded home ownership as a rite of passage. Roughly two-thirds of Americans own homes. Many households count their home as their main asset.
Lately, however, the rent-or-buy calculus has favored the renter.
Many factors go into the equation.
Potential buyers consider how long they’re likely to stay in the home, how much money they can leverage as a down payment, how much interest they’ll pay on the mortgage, and whether the home is likely to increase in value.
Potential renters factor in current rental rates, whether rents are likely to rise, and the costs of rental insurance.
In a typical housing market, a home purchase might make sense for anyone who expects to stay put for, say, five years. That’s enough time to make a dent in your mortgage, building equity in the home, and for its market value to rise. Sell a home after five or 10 years, the theory goes, and you’re likely to profit.
That equation might still work. Yet, housing prices have climbed so high that many potential buyers can’t afford the investment.
“For a lot of people, it’s not an issue of choice,” Mayer said.
In the current housing market, renting looks increasingly attractive.
A 2023 analysis by Realtor.com found that renting was cheaper than buying in 47 of the 50 largest metropolitan areas.
In Austin, Texas, the monthly cost of buying a starter home was $3,946, the analysis found. That’s more than twice the monthly cost of renting, $1,670. The monthly savings: $2,276.
The report found just three metro areas where it remained cheaper to buy: Pittsburgh; Memphis, Tennessee; and Birmingham, Alabama.
A housing expert goes from owner to renter
Elizabeth Renter, a senior writer at NerdWallet who studies home prices, ran the numbers in central Durham, North Carolina, for an upcoming move. She decided to rent.
A Realtor.com rent-or-buy calculator shows home prices averaging $550,000 in central Durham. A home at that price would cost about $2,868 in monthly principal and interest, assuming a 20% downpayment and 6.8% interest. Rents in central Durham average around $1,700 a month. Renting is the cheaper option.
“I’ve never lived in Durham,” she said. “I don’t know if I want to stay in Durham long-term. So, I’m not ready to buy a house in Durham.”
Renter is selling her home, a Victorian fixer-upper in Kansas. She’s tired of fixing things.
“I’m going to love calling the landlord when something breaks,” she joked.
Rents are rising in America, just like home prices, but not at the same pace.
Rents averaged $1,958 nationwide in January, up exactly one dollar from December, according to a NerdWallet analysis.
Rents are 29% higher now than before the pandemic, NerdWallet reports.
But economists don’t expect a big spike in rents in the months to come. One reason: A surge in construction of rental housing.
“We have seen rents slow in recent months,” said Danielle Hale, chief economist at Realtor.com. “So, for people who are renting, you can take advantage of the fact that your rent may possibly go down. More possibly, it will stay fixed.”
Will the housing market ever go down?
Homeownership won’t become more affordable, economists say, without a steep decline in interest rates, home prices, or both.
Economic forecasts suggest mortgage rates might ease later this year, following a series of predicted rate cuts by the Fed.
“There is almost complete consensus that rates will come down,” said Matt Vernon, head of consumer lending at Bank of America.
Home prices are likely to remain high, largely as a matter of simple supply and demand: The pickings are slim. Sales of existing homes bottomed out in 2023, as the nation’s homeowners refused to budge.
Many homeowners refinanced their mortgages at historically low rates, before and during the pandemic. Most mortgage holders now have interest rates of 5% or lower. Home equity stands near historic highs.
“Unless you have to sell, you’ll just stay put,” said Odeta Kushi, deputy chief economist at First American Financial Corporation.
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Roughly two-fifths of American homes are owned free and clear, Kushi said, unencumbered by a mortgage.
“The nuance there is that a lot of those homes are owned by the baby boomer generation,” she said. “Will they move at this point? Maybe not.”
Daniel de Visé covers personal finance for USA Today.
- The median price of a single-family house in December was $427,000
- Competition is increasing for the few homes on the market
Over the weekend, real estate agent Jill Sweetman hosted three open houses.
Despite occurring on some of the coldest days of the winter so far, each open house pulled in 20 to 25 people, which came as a surprise.
“It was biting cold, it was miserable, and normally when the weather is terrible, no one comes out to see houses,” Sweetman said.
What Sweetman saw goes a long way to describe the current state of the housing market as the Rhode Island Association of Realtors released the housing sales data for December 2023.
In December, the median price of a single-family home dipped slightly to $427,000, down $4,000 from November. The median house price is up 10% from December 2022 and 50% from December 2019.
“People are getting desperate for houses again, because all these people braved temperatures in the teens to come and see these houses,” said Sweetman, who is with Nathan Clark and Associates.
In December, the number of houses listed on the market continued a downward slide, with 917, down from 1,152 in November. The number of houses sold fell from 569 in November to 532 in December.
When Sweetman checked the number of listings on Monday morning, the number of houses listed had sunk even lower, to 708.
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Interest rates keep sales depressed, lack of inventory keeps prices high
“We’re in a weird limbo area where sellers aren’t putting their homes onto the market, and for buyers there are no homes, so when there is a really good house, people are competing for it, even though interest rates aren’t fantastic,” Sweetman said.
Interest rates have been climbing, mostly, since record lows in 2021 and 2022, dropping below 3%, peaking at 7.8% in October 2023 and then easing back down to 6.6% as of Jan. 18, according to data from the mortgage lender Freddie Mac.
Higher interest rates normally depress prices as demand slows, but when there is little supply, prices stay the same or barely decrease.
“This is like it was at the start of 2022, when there were like 680 single-family homes on the market,” Sweetman said. “It seems like we’re getting back to that.”
With the market so tight, prices so high and increased mortgage rates reducing buying power, Sweetman said, it’s difficult to make offers stand out, and it isn’t always the highest bidder that wins. Often, it’s the person who offers the smoothest or most secure house sale.
Sweetman recently helped her clients buy a house that was being sold by the former owner’s estate, including all of the furniture, knick-knacks, all of the things that accumulate over a lifetime. To win the bid, they offered to take the house as-is and deal with cleaning out the stuff themselves.
“Junk removal costs $1,000 to $1,500. They take everything out of the old house and you’ve spent $1,500 and were picked over five other people – versus tacking $50,000 on to a mortgage,” Sweetman said.
What the multi-family markets look like
While single-family homes get most of the attention and make up most of the housing stock, condos and multi-family homes are hot commodities.
The median price of a multi-family house dipped slightly to $480,000 in December, down from $492,000 in November and $482,000 in October, but still below the all-time high of $500,000 in June and July 2023.
The number of listings was down slightly in December to 214, from 220 in November.
Multi-family house prices have seen the biggest percentage increase since the pandemic, with December’s median price 68% higher than it was in December 2019. Multi-family houses have been relatively quick to sell, with an average of 23 days on the market for the last three months of 2023.
In all, there were 214 multi-family listings in December, which has dropped to 176 as of this week.
What the RI condo market looks like
With condos, the median price was up slightly, to $360,000, up $3,500 over November. The cost of condos is up 60% compared with December 2019.
Condos are spending longer on the market, 37 days in December compared to 27 days in November. The number of condos listed on the market decreased slightly to 214 in December. As of this week, it’s even lower, at 197.
Houses priced correctly will bring lines, competing offers
When a house is right in that sweet spot, near the new median price, $350,000 to $450,000, appears to be worth it and is in decent shape, it will go fast and there will be competing offers, Sweetman said.
For her buyers, that means going to the first open house scheduled, even if it’s a bitterly cold weeknight, and either offering more than the asking price or figuring out what the seller wants and making that part of the offer.
“Sometimes it’s offering nice terms to a seller, like you’re willing to pay some of their closing costs,” Sweetman said. “Again, it’s a nice way to spend a small amount of money and get a big result.”
While some sellers want top dollar, others just want to move on.
“A smooth transaction where nothing falls apart is often worth more than an extra $20,000,” Sweetman said.
Onslaught of natural disasters affects buyers and sellers
The recent bouts of flooding and tornado-inducing storms have been hitting many of Sweetman’s would-be buyers and sellers.
One couple who own a multi-family house and was looking to move into a single-family is spending the money they had saved for a down payment replacing a roof after it was torn off during a recent wind storm.
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Others are calling Sweetman to ask what to do as their basements flood for the first time since they’ve owned the houses they are now looking to sell.
“They’re spending all their money on mitigation,” she said. “It’s like a perfect storm.”
South County and Newport housing numbers
In Newport County, a total of 41 houses were sold in December, 7% of the total for the state. Jamestown, with six sales, saw the biggest swing in median price over last year, hitting $1.6 million across those six sales, compared with $725,000 across seven sales in December 2022.
Jamestown had the highest median price in the entire state, followed by Block Island, where one house sold for $1.3 million, and then Newport, with $1.1 million over six sales.
Little Compton saw the biggest decrease in single-family home sales, from five in December 2022 to none last month, followed by Newport, down to six last month compared with 16 a year ago. Little Compton was the only municipality in the state to register no sales last month, while Block Island and Hopkinton both registered a single sale.
Portsmouth was the only town in Newport County to see an increase in sales, 14, two more than in November.
Tiverton was the most affordable Newport County town, with a median price of $448,000 across 11 sales, down from 14 a year ago. The median price in Tiverton was up 23% from $357,000.
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Reach reporter Wheeler Cowperthwaite at wcowperthwaite@providencejournal.com or follow him on Twitter @WheelerReporter.
Family members, lower income bidders, tenants and community development corporations will have an easier time purchasing foreclosed homes after Gov. Phil Murphy signed a bill Friday that overhauls the sheriff’s sale process.
Under the Community Wealth Preservation Program (A5664/S4240), New Jersey homeowners experiencing foreclosure, their next of kin, or tenants living in a foreclosed property would have “the right of first refusal” — or first shot when the property goes up for auction — at the upset price, which is the minimum price a seller would accept. That typically includes the outstanding mortgage, interest, fees and other costs.
The law aims to give lower-income families a leg up against large investment companies buying and flipping single-family homes at a growing rate. It lets a foreclosed-upon family, their family members, or tenants of the property to put down 3.5% at the auction, as opposed to the 20% deposit usually required.
“Black and brown wealth is hemorrhaging through the loss of foreclosed property, and the people who live in the community often do not have deep enough pockets to even participate in the foreclosure process,” said state Sen. Britnee Timberlake, D-Essex, the lead sponsor of the bill.
More:Bill headed to Murphy would help low-income bidders buy foreclosed homes in NJ more easily
“This bill is a creative opportunity for families to save their wealth at the time of a foreclosure sale by using financing,” Timberlake said. “This legislation also levels the playing field for renters, affordable housing nonprofit developers and people who want to purchase an abandoned home to restore and live in or to create affordability. This is what equity in systems look like.”
In September 2022, Murphy conditionally vetoed a similar bill (A793/S1427), writing he “wholeheartedly” supported the overarching objectives of the bill, but that he had “serious reservations regarding the legality, practicality, and unintended consequences of several of the proposed mechanisms for achieving these goals.”
New bill after Murphy’s conditional veto
In the conditional veto, he asked lawmakers to rework language dealing with caps to auction prices, and properties that don’t sell at sheriff’s sales, among other things. He struck out a section of the bill that said the upset price — or minimum price accepted by a bank — must be capped at no higher than 50% of the outstanding mortgage, interest, fees or other costs owed.
Lawmakers reintroduced a new version of the bill, as opposed to voting to accept the language, or overriding the veto, and took out the 50% cap language.
More:Murphy conditionally vetoes bill to overhaul home foreclosure. What he wants changed
“That’s the key difference and that’s the reason our opposition was redrawn and we’re neutral on it,” said Michael Affuso, head of the New Jersey Bankers Association. “That was clearly problematic, that everyone could decide to default so they could get their principal reduced.
“When something like that could happen, government-sponsored entities like Fannie Mae and Freddie Mac could look and say, ‘Wait a second, every mortgage that we own in New Jersey is potentially worth significantly less than we think it’s worth, so we’re just not going to buy mortgages in New Jersey,'” Affuso said.
The bill Murphy signed on Friday also gave the right of first refusal to tenants of foreclosed-upon properties, which was not included in the previous bill, and required upset prices be made public at least four weeks before the sheriff’s sale, among other small changes.
How it works
For those who put down a 3.5% deposit at the auction, the rest would be owed within 90 days by cash, certified or cashier’s check, or wire transfer. They can pay with financing if they plan to use the home as their primary residence for at least seven years, and provide proof they have been pre-approved by a financial institution.
They must live in the home for at least seven years, though there are a handful of hardship exemptions for homeowners, like if the bidder or their spouse or child dies, the bidder becomes disabled or loses income.
A nonprofit community development corporation would have the second right of refusal if it agrees in writing to buy the property for the foreclosed upon family, their next of kin, or the tenant. The organization must negotiate an affordable lease for the family and give them the option to buy the property back from the organization.
“For too many, the dream of homeownership feels far out of reach,” Murphy said. “We are creating a new avenue to homeownership for individuals and families throughout New Jersey, giving many the opportunity to remain in the homes and communities they cherish while also protecting our neighborhoods from rapid investor-driven homebuying.”