“As my kids started to buy cars and didn’t have a lot to put down, I would listen to the sales process and make suggestions,” he said. “The car’s depreciating faster than the amortization.”
Potential first-time buyers who now face a larger-than-anticipated car payment for a longer period are also dealing with home rental prices that have soared in major markets. This also makes it harder for them to save for a down payment on their new home.
“That first-time homebuyer is finding in the popular urban areas, the rentals, in many cases, so much of the real estate is owned by these corporate buyers,” Riddell said. “Over the last 10 years, they control the market spread. So rentals in Denver, Chicago, New York, and LA go up. And now you’re paying for a parking spot, and a $600 to $900 car payment that’s going to be out there for six to seven years.”
A heavier burden
As Riddell continued to have informal conversations with lenders and other clients, he kept hearing the same stories regarding the impact of increasing car payment burdens on consumers. He said the burden could eventually weigh on first-time homebuyers and make it harder for them to obtain a mortgage.
“Those payments, the manner in which they were rising, were outpacing general income increases in most households,” he said. “You couple that with interest rates rising for homes themselves, and the amortization period on cars going to 84 months, and now you are carrying this burden. Even if you might qualify for the house, it feels like a heavier burden.”
