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Leaping Over the Hurdles to Homeownership

What can be done to ensure creditworthy households today and in the future have the opportunity to experience the personal and financial benefits of owning a home?

That was the question on the minds of those in a packed room today at the Sustainable Homeownership Conference at University of California, Berkeley’s Memorial Stadium.

The share of the U.S. population who own a home declined during the Great Recession and has recently hovered around a 50-year low despite very affordable mortgage rates and strong job growth.

“The nation’s homeownership rate is trending in the wrong direction and needs to be reversed,” said 2017 NAR President William E. Brown. “Those who are financially capable and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream.”

One of Brown’s main objectives as president this year is identifying ways to boost the homeownership rate in a safe and responsible way. Today’s panel of housing experts and policy officials were not short on ideas.

The morning started with the release of a new white paper commissioned by NAR and prepared by Rosen Consulting Group (RCG) titled, “Hurdles to Homeownership: Understanding the Barriers”. NAR Chief Economist Lawrence Yun, Berkeley Hass Real Estate Group Chair Ken Rosen and David Bank, senior vice president at Rosen Consulting Group, introduced the research and addressed the five main reasons why too many interested would-be buyers are locked out of the housing market. The reasons are:

    • Post-foreclosure stress disorder
      • There has been long-lasting psychological changes in financial decision-making for some of the 9 million homeowners who experienced foreclosure and the 8.7 million people who lost their jobs during the Great Recession.
    • Mortgage availability
      • Credit standards have not normalized following the recession.
    • Growing burden of student loan debt
      • Student loan debt makes it extremely difficult to save for a down payment, qualify for a mortgage and afford a mortgage payment, especially in expensive markets.
    • Single-family housing affordability
      • Many markets are experiencing decaying affordability conditions because of soaring home prices and rents and a lack of single-family housing inventory.
    • Single-family housing supply shortages
      • An insufficient level of homebuilding has created a cumulative deficit of nearly 3.7 million new homes over the last eight years.

“As an older millennial myself, housing affordability is a concern as my generation gets married and starts having children,” said Bank. “Even those with good jobs feel this pain in many parts of the country, not just California.”

Bank added that these barriers will remain for the foreseeable future, but solutions do exist. They are:

    • Safely restoring lending requirements to accessible standards to help creditworthy households purchase homes.
    • Targeted programs and workshops about financial literacy and mortgage debt for those who have negative biases about owning.
    • Policy changes that address soaring tuition costs and make repayment less burdensome.
    • Policies enacted that ensure creditworthy young households and minority groups have the opportunity to own a home.
    • A concentrated effort to combat homebuilder obstacles in order to increase building, alleviate supply shortages and preserve affordability for prospective buyers.

Texas and California: A tale of two markets

Highlighting just how drastic home prices in some parts of the country are, one of the more interesting sessions here today was a conversation between Jim Gaines, chief economist at Texas A&M University Real Estate Center, and Joel Singer, CEO and state secretary at the California Association of Realtors.

Gaines discussed how Texas’ business friendly environment has served the state’s housing market well for decades. However, supply constraints are now starting to develop because of the rising cost of land, building materials and labor.

He noted that many millennials from other parts of the country moved to Texas during the recession because the job market remained stable. As a result, the state is the third youngest in the nation and millennial homeownership rates are high.

“2016 was a record year for home sales (5 percent) and prices (7.6 percent),” said Gaines.

Gearing the conversation towards costly California, Singer’s rather ominous presentation focused on California’s growing affordability burden. Most concerning to him is the fact that homeownership rates among young households are declining despite record low mortgage rates and rising incomes.

“Most of our areas are seeing deteriorating affordability for both renting and owning,” said Singer. “The good news is that our young residents want to buy. However, reaching the market is a problem because of low inventory and high prices. We just aren’t building in relation to our demand for housing.”

Solving California’s affordability pressures: build, build, build

Catharine Baker, California State Assembly, 16th district, said housing affordability is not a partisan issue. In order to make any meaningful progress to addressing housing costs in California, both parties need to be a part of the conversation.

“Families and companies will leave the state if quality of life and housing affordability continues to deteriorate,” said Baker. “We need to attract and retain our talent.”

According to Chuck Reed, former San Jose Mayor and special counsel at Hopkins & Carley, there’s a need for an attitude shift among California residents, especially those who already own and are reaping the benefits of the rising values of their home.

“This shift requires education and heightened awareness of the problems, implications and solutions to solving California’s affordability problem,” said Reed. “A state where only a select few can own homes will only bring more problems.”

Matt Regan, senior vice president of public policy, Bay Area Council, said the affordability crisis in the Bay Area could be solved by one thing: exponentially increasing new home construction. However, regulations and environmental overreach are slowing production.

“The more you make it expensive to build, the less of it you will get. Redundant construction costs and regulations curb construction and put pressure on supply,” said Regan. “The way to further grow our local economy is to build more homes.”

Improving access to mortgage credit

As identified in the white paper, credit standards haven’t normalized and too many would-be buyers with good credit scores are still not able to qualify for a mortgage.

Laurie Goodman, co-director, Housing Finance Policy Center, Urban Institute, said tight credit is a main contributor to the fall and stagnation of the country’s homeownership rate. She pointed to the fact that lenders are taking half the credit risk they did in 2001 – a year many consider to be a period of safe underwriting.

“Homeownership is the most common way households build wealth, and the low rate threatens to increase inequality in our country,” said Goodman. “

Nancy Wallace, co-chair, Fisher Center for Real Estate & Urban Economics and professor, UC Berkeley Haas School of Business, shared the startling fact that households with incomes below the median are getting mortgages, but the share is overwhelmingly Caucasian.

“Credit scoring with multiple borrowers in a household and alternative scoring models will help normalize credit standards to a more appropriate level and allow more to have access to financing,” added Goodman.

Regardless of where today’s speakers live in the country, there was one universal plea: a need to increase the supply and lower the cost of housing to ensure interested homebuyers have the ability to achieve the American Dream.

Let’s hope today’s conversation is the first step to getting the homeownership rate back to a normalized level. Our country and economy depend on it!