12M New Households, 1M Fewer Homeowners

NAR President William E. Brown, left, and UC-Berkeley economist Ken Rosen discussed solutions that will increase the homeownership rate and bolster the national economy.

What will it take to make homeownership a national priority? Despite the addition of about 11.8 million households between 2006 and 2016, there are roughly 1 million fewer homeowners today than a decade ago. Housing economists and other experts discussed the primary causes behind the falling homeownership rates—and potential solutions—at the National Association of REALTORS® day-long Sustainable Homeownership Conference last Friday at the University of California, Berkeley. “The decline and stagnation in the homeownership rate is a trend that’s pointing in the wrong direction, and must be reversed given the many benefits of homeownership to individuals, communities, and the nation’s economy,” says NAR President William E. Brown.

Among the most vexing challenges is the so-called “post-foreclosure stress disorder,” and it continues to have a significant impact on consumer’s financial decision-making, according to Berkeley Hass Real Estate Group Chair Ken Rosen. At the June 9 conference, Rosen shared research highlights from a white paper commissioned by NAR that explore five main barriers that are preventing people from buying homes. 

The psychological effect of jobs and homes lost during the recession remains vivid for many Americans, especially young adults who experienced the hardships their families went through. While most Americans continue to have positive feelings about homeownership, Rosen said targeted programs addressing financial literacy and mortgage financing could help return-buyers and those who may have anxieties and other negative biases about owning.

In encouraging news that coincided with the conference, Fannie Mae recently announced rule changes that should open lending to more potential buyers. Fannie Mae, the country’s largest source of mortgage funds, will ease its debt-to-income requirements as of July 29, increasing the DTI ceiling from the current 45 percent to 50 percent. The changes are a welcome sign for the real estate industry.

NAR Chief Economist Lawrence Yun, a speaker at the June 9 conference, says buyers should take heart at Fannie Mae’s announcement that it will soon relax debt-to-income ratios. NAR has encouraged changes to too-tight underwriting standards for responsible borrowers.

“Given the current historically low mortgage default rates from over-cautious lending standards, there is clear room to expand credit availability,” says NAR Chief Economist Lawrence Yun, who also presented at the conference.

Concerns that the easing of DTI standards could contribute to worrisome “market bubble conditions” such as those that preceded the 2008 housing collapse are unfounded, Yun says. “The current credit scores of borrowers whose loans are approved are substantially higher than those from a decade ago,” he says, adding that current underwriting standards remain much tighter than those of the pre-housing crisis era.

Also, this spring Fannie Mae announced changes that will make it easier for buyers and homeowners with significant student debt to purchase their first home or do a cash-out refinance to retire those student loans.

“The average buyer’s credit profile has strengthened since the recession, but rising prices and limited supply have made it tough for everyone looking to purchase a home. We believe any responsible steps that can be taken to open the credit box, especially for young and first-time buyers, will help people enter the market,” Brown says.

Here are additional key findings from the white paper, “Hurdles to Homeownership: Understanding the Barriers,” discussed at the Berkeley conference:

• Restricted mortgage availability. Creditworthy buyers are still not getting approved at the rate they were in 2003, prior to the period of excessively lax lending standards.
• Student loan debt burden. Young adults are finding it very difficult to save money for down payments, qualify for a mortgage, and afford mortgage payments, especially in high-priced areas, because of onerous debt levels.
• Single-family housing affordability. Lack of inventory, higher home prices, and investors putting a squeeze on supply levels have led to challenges with affordability in many areas.
• Single-family housing supply shortages. Single-family home construction decreased dramatically during the recession and is still not keeping up with demand. “The insufficient level of homebuilding has created a cumulative deficit of nearly 3.7 million new homes over the last eight years, Rosen says.

In order to make homeownership once again an affordable and realistic opportunity for young households, policy changes will be necessary to reduce the growth in college tuition costs, minimize borrowing costs, diminish the incidence of delinquency, and make repayment less burdensome, according to the white paper.

—Wendy Cole, REALTOR® Magazine