NAR Paper Identifies Homeownership Hurdles
Five barriers to homeownership are identified in a new study released on Friday by the National Association of Realtors® (NAR). The white paper, titled "Hurdles to Homeownership: Understanding the Barriers" was prepared for NAR by the Rosen Consulting Group (RCG) and examines why, "Despite steadily improving local job markets and historically low mortgage rates, the U.S. homeownership rate is stuck near a 50-year low." The study was released at the Sustainable Homeownership Conference sponsored by NAR and the University of California, Berkeley's Fisher Center for Real Estate and Urban Economics.
"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," said 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."
The paper examines the underlying causes of each of the barriers identified in the paper, many of which arose out of the housing crisis. In brief, these are the five hurdles NAR and RCG believe have prevented a significant number of households from purchasing a home.
Post-foreclosure stress disorder. Nine million homeowners lost their homes through foreclosure during the housing crisis and 8.7 million lost their jobs. Millions of others suffered less severe losses such a period of negative home equity or degraded wealth and/or retirement savings. In addition, many young adults watched their families and friends go through these disruptions.
RCG believes these people are still suffering from long-lasting psychological changes that altered their perceptions of financial risks and changed their financial decision making, especially when it comes to housing choices.
While most Americans still have positive feelings about homeownership, the study says, targeted programs and workshops about financial literacy and mortgage debt could help those wanting to return to the housing market and those who may have negative biases about owning.
Mortgage availability. Credit standards have not normalized following the Great Recession. Borrowers with good-to-excellent credit scores are not getting approved at the rate they were in 2003, before the housing boom and its accompanying lax lending standards. Safely restoring lending requirements to accessible standards is key to helping creditworthy households purchase homes.
The growing burden of student loan debt. Younger Americans, particularly the so-called Millennials, are burdened with repayment of an increasingly large level of student debt. This makes it very difficult for young households to save for a down payment, qualify for a mortgage, or afford the resulting payment. This is especially true in areas with high home prices and rents. Policy changes need to be enacted that address soaring tuition costs and make repayment less burdensome.
Single-family housing affordability. A current lack of inventory, the difficulty of saving for a down payment, high home prices, and competition from investors have led to falling affordability in many markets. If these challenges persist, RCG forecasts that affordability will fall by an average of about 9 percentage points in all 75 of the major housing markets by 2019. This could put home buying out of reach for another 5 million households. Declining affordability needs to be addressed with policies that ensure creditworthy young households and minority groups have the opportunity to own a home.
Single-family housing supply shortages. Inventories remain a persistent problem. One reason is that the decline in single-family home construction during the recession has not fully corrected. That construction, according to Berkeley Hass Real Estate Group Chair Ken Rosen, "
RCG cites lack of availability and high prices for buildable lots, the difficulty of finding skilled labor, and higher construction costs, as among the reasons housing starts are not ramping up to meet the growing demand for new supply. A concentrated effort to combat these obstacles is needed to increase building, alleviate supply shortages and preserve affordability for prospective buyers.
"Low mortgage rates and a healthy job market for college-educated adults should have translated to more home sales and upward movement in the homeownership rate in recent years," according to NAR Chief Economist Lawrence Yun. "Sadly, this has not been the case. Obtaining a mortgage has been tough for those with good credit, savings for a down payment are instead going towards steeper rents and student loans, and first-time buyers are finding that listings in their price range are severely inadequate."
Rosen added, "A healthy housing market is critical to the overall success of the U.S. economy. Too many would-be buyers have been locked out of the market by the factors found in this study, and it's also one of the biggest reasons why economic growth has been subpar in the current recover".
"Hurdles to Homeownership" is the second of three papers scheduled for release this year by RCG. The first, released earlier this year titled "Homeownership in Crisis: Where Are We Now? Posited that more than $300 billion might have been added to the economy along with an additional 1.8 percent of GDP in 2016 if homebuilding had returned to a more normal level. The third paper, which will be released later this year, will highlight policy ideas to promote safe, affordable, and sustainable homeownership opportunities.