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Moving home could help renters save for a down payment in less than two years: Realtor.com

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Danielle Hale, Realtor.com Chief Economist, joined Yahoo Finance Live to discuss's a new Realtor.com report that shows moving home may help renters save for a down payment in less than two years.

Video Transcript

- Saving for a down payment has become more and more difficult as the price of homes continue to rise. And for that, we want to bring in Danielle Hale. She's the chief economist at Realtor.com. And Danielle, you're out with a new report on this showing that home-ownership might actually be more attainable than people initially think it is. What did you find?

DANIELLE HALE: And so we know that people have been making lots of adjustments to the way they live in response to the pandemic. One of the biggest adjustments lots of young people have made is moving back in with family, either their parents or extended family. And for a lot of them that's created an opportunity to save, such that renters who aren't paying rent might be able to save up for a down payment sooner because they're living with family and not paying rent right now.

- I'm looking at the chart you've got on how many months it takes to save up in different metro areas. And in most places, what you've got, 5% down, especially for your first time you've got enough. But in other places like New York or places with co-ops, sometimes you need 20%. Is that a hindrance?

DANIELLE HALE: Yeah, absolutely. So we did this analysis looking at what a 5% down payment. How long it would take you to accumulate a 5% down payment across markets. But you're absolutely right. That's the norm nationwide for a down payment, but it is not the norm in every city. Some large cities, New York, a lot of the California metros, you probably need to save a little bit more than 20% to be competitive. And so what we find is that it still takes longer to save in those markets because prices are so expensive. And then when you add that additional down payment, it can take even longer. But in some of the most affordable markets, Chicago for example, you can save for a 5% down payment in less than a year. We're almost a year into the pandemic, so people who are early adopters of moving in with family may already be very, very close.

- Danielle, when you look out to the rest of this year, maybe all the way into 2022. I mean, when are you expecting or are you expecting to see a housing correction at any point?

DANIELLE HALE: That's a great question. I think we've seen prices rise so much that a lot of people are wondering how much can this go on? We do expect home prices to slow as sellers get more comfortable putting their home up for sale as vaccines become more widespread, as the virus is less of a health risk to many. So we do think the price growth will moderate, but we don't expect it to slow down. The very large cohort of young people that are reaching prime home buying age, and so they're going to be a nice demographic tailwind for the housing market for the foreseeable future.

- Do you expect prices though, I mean, the problem with low interest rates is it drives prices up and then the metrics start moving. Do you see that plateauing anytime soon?

DANIELLE HALE: So our forecast does expect that mortgage rates will rise gradually throughout the course of 2021 as the economic outlook improves, as the Fed eventually starts to taper some of the mortgage backed securities buying probably later in 2021. So yes. Mortgage rates will rise. That will certainly be a damper on home price growth. But when you look at the supply in demand fundamentals, we still got a lot of buyers and not very many homes for sale. And the way to the market solve that problem is by pushing up prices. And so that pressure for price growth is going to be around, until we really start to ramp up building.

- Danielle, what regions do you expect to be the most popular here? At least, let's talk about short term. Because over the last 10 months it's been right outside of some of these major cities. Is that trend going to continue?

DANIELLE HALE: Yeah. We do expect that trend to be the hallmark of 2021. Our top markets in 2021 are generally secondary cities, they're are a little bit more affordable than the major downtown areas, people have more flexibility now and expect that flexibility to stick around. So maybe we won't be working from home five days a week in the future, but maybe a lot of people will work from home three or four days a week and that makes a longer commute more manageable, and you get a lot more bang for your buck in the suburbs. So top markets, our number one market nationwide is expected to be Sacramento, California. It, in particular, benefits from being not too far from the Bay Area. You wouldn't want to commute it every day, but you could get into the office in the Bay Area if you had to. But other top markets are a lot of California secondary markets, Harrisburg is one that's expected to do well on the East Coast because it's not far from major cities like New York, Philadelphia, Baltimore, DC. So areas that offer a lot of affordability and are not too far from those major metro areas are poised to do well in 2021.