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46 DOES THE INTERNET CUT COSTS FOR OUT-OF-TOWN BUYERS? e internet was supposed to make countless aspects of daily life better, faster, and easier. at obviously isn't always the case, but a study by Collateral Analytics examines how the internet is—or isn't—making it cheaper and more efficient to buy a home. Specifically, Collateral examined whether the abundant availability of free real estate information online is helping remove some of the costs out-of-town buyers have traditionally faced as compared to locals. In the past, buying a home out of town has been significantly more difficult than shopping in your own city. Out-of-town buyers often have less time for their searches, don't know the market as well as they do their own town, and sometimes are unwittingly affected by the "anchoring effect"—in this case, a tendency to bring assumptions about housing prices in their own market into their search in the new one, thus possibly overestimating how much a home should cost. e rise of the internet, and specifically home-search websites such as Realtor.com, Zillow, and Redfin, should, at least theoretically, help alleviate some of these problems and shrink the efficiency gap between locals and out-of-town buyers. But has it in actuality? Examining 15,795 transactions from the Miami-Dade market (5,446 in 2005 and 10,349 in 2015), Collateral's analysis set out to answer three questions: » Do out-of-town buyers pay more for real estate compared to locals? » If so, is that premium caused by different search costs (distance), biased beliefs (anchoring), or the level of personal income (wealth)? » Did the search cost premium decrease from 2005 to 2015 due to better public information provided by the internet? Sure enough, the internet has made a difference during that 10-year gap—although perhaps not as much of one as you might expect. Collateral found that the out-of-town premium paid in 2005 averaged 5.72 percent, while the average 2015 premium was 4.95 percent. According to Collateral's report, "is is only a slight decline, which suggests that search costs still matter and that other sources of information may dominate the price paid by buyers." e report continues: "For the mean property value of $275,837 in 2005, the coefficient translates into an out-of-town buyer leaving an average of $15,777 on the negotiating table, relative to in-town-buyers if he lives 100 miles away. In 2015, this premium is only $13,939." Collateral theorizes that, in spite of the plethora of online data available to buyers today, many still aren't using it, instead continuing to rely on real estate agents and other sources. TOP 3 BARRIERS TO HOMEOWNERSHIP As home prices rise and tight inventory continues, the current market has made it more challenging for Americans to reach their goals of homeownership, especially for low- to median- income borrowers and first-time homebuyers. According to the Urban Institute's Housing Finance Policy Center, there are three significant barriers to homeownership: saving for a down payment, accessing mortgage credit, and housing affordability. In a recent report, Urban Institute breaks down these barriers, reporting data on the latest market trends of these obstacles. One of the biggest barriers are consumers thinking they need to put more down than lenders actually require. According to the report, results show that 53 percent of renters cite saving for a down payment as an obstacle to homeownership. Meanwhile, 80 percent of consumers are unaware of how much lenders require for a down payment or believe all lenders require a down payment above 5 percent. Additionally, 15 percent assume that lenders require a 20 percent down payment, and 30 percent believe lenders expect a 20 percent down payment. Contrary to popular belief, borrowers are not putting down 20 percent. e report notes that the national median loan-to-value (LTV) ratio is 93 percent. With entities such as the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) offering lower down payment options than the GSEs, from 0 to 3.5 percent. Although the challenging path to homeownership isn't based on downpayment alone—credit access is historically tight, especially during the post-crisis period. Currently, the media credit score of a new purchase mortgage origination is 779, compared with precrisis median of 692. National home price affordability has declined due to the growing home price appreciation, and for a mortgage with 20 percent down, mortgage payments would make up 22 percent of the median borrower's income. According to Urban Institute, if interest rates reach 4.75 percent, national affordability will return to historical average affordability.

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