It’s been about four months since Palmetto native Alzire LeBen became a homeowner for the first time, and it’s a feeling she says has yet to sink in.
If you knew how long it took to get there, you’d understand. She rented mobile homes over the years, including one that was aging and deteriorating. All the while she kept working toward improving her credit, saving money and working her job at LHC Group.
Then she landed a promotion, put her federal stimulus money in a savings account that was already growing and in the spring applied for a mortgage. Thanks to interest rates that kept dropping, she found herself approved for a newly constructed home in Sunset — a 1,300-square-foot, three-bedroom, two-bath home on a corner lot in a subdivision on the city’s south side with a mortgage payment of less than $1,000.
To celebrate, LeBen’s mother made the first meal of the new home — gumbo and pecan candy — after she and her daughter, Kayleigh, who will turn 11 on Tuesday, moved into the home they call their own.
“I was constantly working on it probably for the last four or five years,” LeBen said. “I’m still in shock. I didn’t think it would happen just because I wanted it. I did the work, and everything kind of fell into place.
“That (meal with mom) made it our home, and her telling me how proud she was (made it) as well. She was a single mom. It was a big moment for me, but it was a big moment for her as well.”
LeBen was able advantage of historically low interest rates in 2020 that set the Acadiana real estate market ablaze with sales that reached all-time highs. Metros across the country reported skyrocketing sales as the lower interest rates flooded the market with buyers and tilted the power in the market heavily to the seller.
But the year was also a big one for first-time homebuyers like LeBen. No data was available for the Acadian region, but national reports indicate the number of first-time homebuyers rose significantly in 2020 and may continue in 2021 with interest rates averaging below 3%.
Mortgage insurance specialist Genworth Financial reported the number of first-time homebuyers in the third quarter last year reached a 20-year high.
Candra Savoie with District South Real Estate in Lafayette said of the nearly three dozen homes she sold this year, 13 went to first-time buyers. Most were in the early to mid-20s. One couple was only 19 years old.
“They’re starting earlier,” Savoie said. “I think that generation, they have quicker access to a lot more information than we did. In the social media world, they see a friend posting their closing picture. A lot of them are smart enough to realize: ‘How do I do that?’”
The average interest rate on a 30-year fixed rate mortgage sunk to below 3% just after the coronavirus pandemic began and remained there, and the results were obvious: the number of homes sold in Lafayette Parish in 2020 topped 2019’s total by over 600. The 430 homes sold in December set an all-time record for most homes sold in a month.
How long the interest rates remain low is the big question, said Gary Wagner, Acadiana Business Economist with the University of Louisiana at Lafayette. Not until last week did the rates start to rise again but only slightly — up to 2.79% on a 30-year mortgage, according to Freddie Mac report.
Another factor driving the market is the dwindling number of homes for sale.
“The main reason the housing markets are doing so well here and everywhere around the country is that inventory levels are really, really low,” Wagner said. “For the Lafayette MSA, listings are about 45% below 2019. So obviously having inventory levels that low is not sustainable for the long term. It’s not unreasonable to think it’ll last until the middle of 2021.”
From renter to buyer
Anna Muesing was commuting to her job as business intelligence analyst at Opelousas General Hospital from her apartment in Youngsville. The drive was getting old, as was the $1,100 she paid each month in rent.
Both may have been enough to push her into home ownership. In April at the age of 25 she bought her first home — a 1,600-square-foot home in a new development on the east side of Carencro for under $180,000.
“My parents were kind of shocked I was even thinking about buying a home,” said Muesing, a native of Charlotte, N.C. “I’m used to apartment living. I just saw it as a good investment, to be honest with you. I’m paying as much in a mortgage payment as I was paying for a one-bedroom apartment.”
Muesing bought her home through the USDA rural development loan program, as did LeBen, which required no large downpayment for the purchase and is used to promote home purchases in suburban and rural areas. In Muesing’s case, she was ready to drop the large payment down but was advised to keep it as a nest egg.
“If people realized what opportunity there was, especially in rural areas,” Muesing said. “The rural development loan is a huge incentive to have young people to buy. I wish younger people would not see it as another burden but as a good investment. I’m painting my walls. You never get to do that in an apartment.”
The number of renters who jumped into home ownership won’t soften the local market for apartments and other rental units, said Chad Trahan, president of development with Coldwell Banker Trahan Real Estate. But interest rates are so low now that someone could pay $850 a month in a mortgage or pay $1,200 a month in rent.
“People can buy a home for less than can pay in rent,” Trahan said. “As long as people have a job and their credit is good, they can buy a house.”
End in sight?
The rock-bottom interest rates will all end at some point, warned Bill Bacque, the longtime Lafayette real estate analyst with Market Scope Consulting. And the result will be just the opposite for homebuyers who may want to move out of that home they bought when times were good.
The amount a buyer can get approved for a loan goes down about 12% for every 1% rise in interest rates, which means homes bought recently could lead to some buyers locked into it once rates bounce back. Right now that formula is working in reverse, meaning every 1% drop in interest rate brings the buyer’s affordability up 12%.
So with a 2% drop in interest rate, the buyer initially approved for a $200,000 home loan could get approved for $240,000 and — here’s the kicker — have the same monthly payment.
“I don’t think that be you middle age, young age, old age that you’re not unaware that the interest rate levels being offered right now are mind-boggling,” Bacque said. “This is a historic opportunity in acquiring home ownership — not just acquiring it but buying more than you can ever afford.”
There’s no indication another housing bubble is on the horizon, data shows. The number of foreclosure filings nationwide dropped to its lowest levels since at least 2005, according to data release last week from ATTOM Data Solutions, which tracks foreclosure data.
Lenders may be more forgiving this year during the pandemic, but the 214,323 filings last year absolutely dwarfs the 2.8 million that were filed in both 2009 and 2010 during the height of the housing crisis.
The number of homes in forebearance cases are worth monitoring, Wagner said. In August Louisiana was second in the nation with 11.2% of homeowners behind on their mortgage, according to Black Knight, a Florida-based company.
Data shows the most of who lost jobs during the pandemic were earning below $27,000 and less likely to be homeowners, he said. Households had a lower debt-to-income ratio last year than they did in 2008.
“People were borrowing basically beyond their means to buy houses,” Wagner said. “That’s not happening now.”