How brokers can help past customers with affordability challenges
Later this week in Davos, Switzerland, President Donald Trump is expected to unveil his housing affordability plan. Details of what may be included in the plan are limited so far.
In addition, Congress continues to work on housing bills with the same end goal: helping consumers buy a new home.
While home purchase affordability is a big part of the equation, it isn’t the only type of affordability that the government needs to be concerned with, according to one economist.
Selma Hepp (pictured top), chief economist at Cotality, said a growing challenge is that current homeowners are struggling to afford the homes they already have. And it’s something brokers should be keeping an eye out for with their former customers.
“When we're talking about affordability nowadays, it's not just a new buyer, it's existing homeowners too,” Hepp told Mortgage Professional America. “How do they keep the home that they're in? Because of all these costs going up. So it's not surprising to me that people are so reluctant to enter the housing market, because everything is so much more expensive.”
K-shaped economy
When describing the state of the US economy, both economists and even Fed chair Jerome Powell have used the term “K-shaped economy.” It means the gap between the top 50% and the bottom 50% continues to widen.
“This whole K-shaped economy, if you were on that lower or even 50th percentile, you're not better off than you were six years ago,” Hepp said. “Even if their income is just barely keeping up with inflation, they must be very frustrated. So how do we fix that? I think the good thing is that there are so many conversations out there. It is a crisis that we shouldn't waste, so we should actually come up with something.”
This can open the door for brokers to reach out to previous customers to learn about their current financial situation. They can determine whether second-lien products could help them reduce consumer debt, which would improve their monthly budget.
However, for those still on the sidelines looking to enter the housing market, other factors can improve their affordability. While incomes may not be keeping up with inflation, a surge in housing inventory could help keep prices steady enough to bring more buyers into the market.
While the White House is talking about banning large institutional investors from buying up homes, Hepp said incentives to get smaller investors to move on from properties would likely have a greater impact.
“Giving some reason for small investors to sell the homes would be a way,” she said. “That would see more inventory out there, which would slow down home price appreciation. I think addressing the smaller investor community would be more effective than these large, institutional investors.”
And while there is talk about decreased regulation in the construction process, Hepp cautions that it shouldn’t come at the expense of building high-quality homes.
“I'm always in favor of supply-driven solutions for more construction and reducing the cost that comes from regulation in terms of new construction,” she said. “But we want to build sturdier homes. If the regulations make it more expensive to build a home, but that home is more sturdy, I think we should be in favor of that because it preserves the home for longer.
“But when you have these ‘not in my backyard’ people, and they just prolong the approval process unnecessarily, that’s not good either. Those types of things where you're not standing in the way of new construction should be talked about more.”
Affordability is improving slowly
Obviously, if mortgage rates continue to fall throughout 2026, that will help front-end affordability. However, Hepp said that declining rates only help consumers so much, and that other factors need to improve as well.
“One big help would be mortgage rates,” she said. “However, we know that mortgage rates can only help so much because home prices have gone up so much. I think the fact that home prices are slowing and rates are declining, the two factors combined, you're seeing better affordability. I think that's all helping improve affordability. But it's still going to take a while.”
Mortgage payments are still higher than they were before the pandemic in 2020. Hepp said true relief will come when payments subside. However, there are positive signs in the new year.
“When we look at the typical mortgage payment adjusted for inflation, and we take into account slightly lower mortgage rates, we're still 50% to 60% above 2019’s typical mortgage payments,” she said. “That’s what makes it so hard to say that affordability is going to be so much better. But it is getting better.”
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This article is part of our Monthly Spotlight series, which in January focuses on Affordability. Full coverage can be found here.
