Rocket Fuel Newsletter – 11/25/2024
This week’s edition has October construction data, the lows of minimum wage, changes in home buyer behavior and the history of mortgages.
Fuel up! 🚀
7 cities where you need to earn 4 times the minimum wage to afford rent
In these cities, the minimum wage is set at $7.25 per hour. To afford a one-bedroom apartment, a person earning minimum wage would need to make about four times that amount. This means the rent for a one-bedroom apartment would need to be around $377 per month for someone earning minimum wage to afford it.
The seven cities are: Philadelphia, Nashville, Raleigh, Austin, Charlotte, Atlanta and Dallas.
Cities where you need to earn 4 times the minimum wage to afford rent
October 2024 construction data: Single-family homes
In October 2024, construction activity for single-family homes showed a decline across key metrics: permits, starts, and completions – all decreased compared to September 2024. Housing starts drew significant attention, experiencing a 3% decline from the previous month and a 4% drop compared to October 2023.
How declining affordability is changing home buyer search behavior
Earlier this month, Freddie Mac published an interesting research note highlighting shifts in home buyer behavior due to affordability challenges.
Key findings from their study include:
- “While affordability of owning relative to renting is very poor compared to pre-pandemic levels, it is similar to the early 2000s and within the upper range of historical norms.”
- “Southern metros are experiencing the largest affordability declines.”
- “Homebuyers are adapting to the deterioration in affordability by targeting smaller homes than in the past.”
As you can see in the graph below, applicants are more likely to apply to rent a larger home rather than buy it in years past.
When exploring home loan options, you’ll often come across 15-year and 30-year mortgage terms. But have you ever wondered how these specific time frames became the standard?
As it turns out, the story behind mortgage terms is as much about economics as it is about tradition. The 30-year mortgage, in particular, has evolved over nearly a century into a cultural and financial norm, as its widespread acceptance aligns with life stages and long-standing expectations.
Understanding these mortgage terms can help borrowers make more informed decisions.
The 30-year mortgage became standard during the 1930s. Prior to this time, most home loans were short-term loans, lasting 3 to 5 years and requiring a large balloon payment at the end. This system excluded many from homeownership, as few could save enough to cover the hefty sums.
During the Great Depression, widespread defaults left families without homes and banks unable to recover their investments. To stabilize the market, the federal government introduced programs like the Federal Housing Administration (FHA) and Fannie Mae, which popularized longer-term, fixed-rate mortgages.
These initiatives revolutionized home financing, making the 30-year mortgage the go-to option for its balance of affordability and stability. Later, the 15-year mortgage emerged as an alternative for those looking to pay off their loans more quickly and save on interest. Together, these innovations helped democratize homeownership in the U.S. and shaped the housing market as we know it today.
For some, even 15 years is too long. Terms of 8 or 10 years, for example, can offer unique benefits. While the monthly payments are higher, the reduced interest over the life of the loan can save borrowers a not insignificant amount of money. These shorter terms appeal particularly to those looking to build equity quickly or nearing retirement.
However, longer terms – like the 40-year mortgage – also exist. While less common, they are often a way to further reduce monthly payments. Nonetheless, the trade-off is clear: more interest paid overtime and slower equity accumulation. For most lenders and borrowers, the balance of affordability and long-term financial health makes the 15 and 30 year the sweet spot.
Ultimately, the “best” mortgage term depends on the buyer’s personal financial goals and circumstances. By understanding the rationale behind these options – and exploring less-common terms – buyers can be better equipped to choose a term that aligns with their priorities.
The OCN Mortgage Holiday Party is almost here.
Join us at the OCN Mortgage Holiday Party on December 5 in Irvine, California.
Use code ROCKETFREE for free registration and secure your spot for a festive evening. This is our last event of the year – you won’t want to mis out.
In the new year, we’ll be kicking things off with the New England Mortgage Expo from January 15 – 17, where you'll hear keynotes from Mike Fawaz, Rocket Pro TPO Executive Vice President, and Don Chiesa, Rocket Pro TPO Vice President. Don’t forget to use code ROCKETFREE for free registration. See you there.
We had some incredible times last week! Over half of our solvers finished in under 2 minutes, and 16 finished in less than 1 minute. Congrats to the three who finished in less than 30 seconds, including our winner who clocked in at just 20 seconds.
This week’s Thanksgiving-themed puzzle gets 3 Rockets out of 5.
Good luck!