Zillow’s Jaw-Dropping Response to Mortgage Crisis

Zillow announced that it’s offering mortgages with a 1% down payment to US homebuyers who are being squeezed by mortgage rates, which climbed to a 22-year high earlier this week.

Zillow debuted its 1% down payment program on Thursday, agreeing to contribute an additional 2% at closing in an effort to “reduce the time eligible homebuyers need to save [money],” the real estate marketplace said in a statement.

“Most markets are in the midst of an affordability crisis, and saving for a down payment remains one of the biggest barriers for many potential homebuyers,” Zillow said — the same day mortgage rates in America hit their highest level since 2001.

Mortgage buyer Freddie Mac said Thursday that the average rate on the benchmark 30-year home loan climbed to 7.23% from 7.09% last week — significantly higher than just one year ago, when the rate averaged 5.55%, and more than double what it was two years ago.

The average rate on 15-year fixed-rate mortgages, popular with those refinancing their homes, rose to 6.55% from 6.46% last week. A year ago, it averaged 4.85%, Freddie Mac said.

It’s the fifth consecutive weekly increase for the average rate, which is now at its highest level since early June 2001, when it averaged 7.24%.

Zillow’s 1% program could also be a way to win back business after two years of declining sales. The company’s now-shuttered home-flipping business, Zillow Offers, lost a staggering $881 million in 2021. 

For the entire fiscal year, the company posted a net loss of $528 million and laid off about 2,000 staffers, roughly 25% of its workforce. In 2022, Zillow reported $101 million in net losses and $1.95 billion in annual revenue — an over 8% dip from the previous year.

The terms of Zillow’s down payment program are currently vague, and it’s unclear if customers need to be first-time homebuyers or make a certain amount of income.

However, homebuyers participating in the 1% offer will likely need to meet typical loan requirements, such as having a credit score of around 620, making an annual salary to the tune of at least $20,000, and ensuring debt-to-income ratio is somewhere between 36% and 50%.

Zillow also advises homebuyers looking to take advantage of its new program to prepare for getting a mortgage by not closing any accounts and holding off on financing large new purchases.

Zillow’s 1% is initially being rolled out in Arizona, “with plans to expand to additional markets,” Zillow said.

The rate trumps Freddie Mac’s 3% Home Possible offering, which is available to qualified first-time homebuyers.

Representatives for Zillow did not immediately respond to The Post’s request for comment.

High rates can add hundreds of dollars a month in costs for borrowers, limiting how much they can afford in a market already unaffordable to many Americans. They also discourage homeowners who locked in low rates two years ago from selling.

According to the National Association of Realtors, first-time homebuyers, on average, put down 6% of the purchase price at the time of closing, while repeat buyers typically put down 13%. 

It’s a common misconception that buyers need to purchase 20% equity in their home at the time of sale, the association said, which has discouraged many aspiring homeowners from shopping around or applying for a mortgage.

The issues in the housing market are compounded by a lack of inventory as buyers who locked in lower borrowing costs from as recent as two years ago are now reluctant to sell and jump into a higher rate on a new property.

It’s a key reason new home listings were down nearly 21% nationally in July from a year earlier, according to Realtor.com.

Meanwhile, mortgage rates have been rising along with the 10-year Treasury yield, used by lenders to price rates on mortgages and other loans.

The yield has been climbing as bond traders react to more reports showing the US economy remains remarkably resilient, which could keep upward pressure on inflation, giving the Federal Reserve reason to keep interest rates higher for longer.

High inflation drove the Fed to raise its benchmark interest rate 11 times since March 2022, with the latest hike lifting the federal funds rate to a range between 5.25% and 5.5%. 

The hike sent the benchmark rate to its highest point since 2001 — and Powell signaled that another increase is possible before the year’s out as officials continue to wrestle with stubbornly high inflation.

With Post wires.

Originally published on NYPost.com