Part 4 of the
recent edition of the Harvard Joint Center on Housing Studies' report on the State of the Nation's Housing looks at
the declining rate of homeownership in the U.S. which has now fallen for the
seventh straight year. The rate edged down
0.3 percentage points in the 2012-13 time period to 65.1 percent while the
number of homeowner households also fell for the seventh straight year,
declining by 76,000. However these were
the smallest declines since 2008 so the Center suggests that the bottom may be
seen the greatest decline among the age groups which usually generate the most
activity in both the first-time and move-up markets. Between 2004 and 2013 homeownership among 25
to 34 year olds slipped by nearly 8 points and 9 points for the next older
group, 35 to 44 year olds. Older groups
have not been immune. The Current
Population Survey found that rates for all age groups between 25 and 54 are at
their lowest point in the 39 years records have been kept. Homeownership among those over age 75 however
is near the record high.
Rates for minority
households have also dropped sharply with black households down 6 percentage
points from previous peaks and Hispanic and Asian/other households down 4
points while white households are down only 3.
Some minority homeownership rates may now be stabilizing; Hispanic and
Asian/other rates did not change in 2013, but the gap in black/white
homeownership has expanded from 25.9 points in 2001 to 29.5 points and the
Hispanic/white gap grew 1.7 points from 2007 to 2013 to 27.3 points.
gaps will put downward pressure on the national homeownership rate,
particularly among younger age groups where the minority share of the
population is growing while homeownership is dropping. Of the 5.5 point 1993-2013 drop in the rate
for 35-44 year olds, about 4.0 points reflect the groups shifting racial/ethnic
composition. As minority populations
grow, opportunities for homeownership must grow as well in order to maintain
demand for owner-occupied housing.
This is much truer in
the first-time homebuyer market where minorities make up an even larger and
growing share, an estimated 32 percent.
Fourteen percent of the market is Hispanic and 49 percent of those
buyers are immigrants. The minority presence is also shifting the age
distribution of first-time buyers. The
median for white buyers is 29 but for black buyers it is 37; other minorities fall
demographic changes the report points out that most characteristics of
first-time homebuyers are what they have always been. They are younger and more likely to be
married than are renters, especially in the 25-34 year old group. Higher incomes are also a major determinant
of first-time homebuying. The share of
first-timers with annual incomes over $75,000 is 34 percent compared to 13
percent among renter households.
But with both marriage
and high incomes less prevalent than a decade ago fewer first-time buyers fit the
traditional profile. What growth there has been among younger households is, in
fact, concentrated in those least likely to buy a home. The center cites the example of younger married
couples where homeownership dropped by more than 914,000 households in the ten
years ending in 2013 while younger single-person and non-family households
increased homeownership by 1 million.
The cost of
homeownership, while still relatively affordable by historical standards, is
rising; the price of an existing home increased by 10 percent and interest
rates by 1 point in 2013 which pushed up the monthly payment on a median priced
home by 23 percent. While the median
$780 monthly payment would still have been a record low in real terms at any
time prior to 2010, payment-to-income ratios rose in every metro area analyzed
as incomes stagnated or fell behind the growth in housing payments. Based on the National Association of Realtors
affordability cut-off of 25 percent of income for housing payments residents
earning the median income could afford to buy a median priced home in all but
six of the largest metros last year.
But median incomes
far exceed the income for many renters who would like to transition to
homeownership. The Center looked at the
income of renters in each market and used the new qualified mortgage rule of a
43 percent debt-to-income ratio to determine who might be able to buy. They concluded that 36 percent of renters in
the top 85 metros could qualify by income for a mortgage to buy a median-priced
unit in their market. This assumes 5
percent down, 8 percent non-housing debt, and average taxes and insurance
Again however, real
estate is local. In the metro areas
along the coasts buying a home would still be a big financial stretch for
renters. In the 12 most expensive
markets the 36 percent becomes 30 percent and in Honolulu and San Francisco
only around 13 percent could afford a median priced home. In the 15 least expensive metros, many of
which are just coming out of the foreclosure crisis, a home would be affordable
for more than half of renters.
need mortgages to purchase and this is an era of tight credit. There was an increase in lending in 2011 and
2012 but not all groups benefitted equally.
The increases in lending were much smaller for minorities (especially
blacks) and there were also disparities across income groups - a gain of 16
percent among high income borrowers but only 9 percent among the low income.
conventional purchase mortgages were much higher among minorities - 25 percent
of Hispanics and 40 percent for blacks; two to three times higher than the
denial of white applications and the disparities are increasing. Meanwhile those earning less than 50 percent
of an area median income were rejected at a rate 14 percentage points higher
than those with moderate incomes and three times more frequently than high
income applicants. The lowest income
were also the only group to see their rejection rates increase in 2012.
criteria as regards credit scores has also played a role in the sluggish
recovery of the purchase mortgage market.
Data from CoreLogic shows that lending to individuals with scores below
620 effectively ended after 2009 and access to credit by those with scores in
the 620 to 659 range has become increasing constrained. While lending to that group fell by 6 points,
the share of purchase mortgages to those with scores above 740 rose 8 points.
appear to have moderated in the last year. Average GSE credit scores dipped
slightly and the share of mortgages acquired by Fannie Mae to borrowers with
sores below 700 increased 4.3 percentage points. Average scores for FHA loans declined from
nearly 700 to about 690 and the agency reports a downward shift in the
distribution of loans to the 620-719 range.
Urban Institute research indicates that much of the changes to both FHA
and GSE metrics merely reflect the migration of borrowers with moderate scores
from FHA to the GSEs. Thus while the
credit box may have widened, the easing of credit is more modest that the drop
in scores might suggest.
who are able to access credit, loan costs
have increased steadily.
Interest rates rose to 4.46 percent at the end of 2013 and both the
Federal Housing Administration (FHA) and the government sponsored enterprises
(GSEs) Fannie Mae and Freddie Mac raised their loan guarantee fees (g-fees). The average g-fee jumped from 22 basis points
in 2009 to 38 in 2012. The GSEs also introduced
loan level price adjustments (LLPAs), upfront fees paid by lenders based on
borrower risk. LLPAs can total as much
as 3.25 percent for the riskiest loans and are passed through to borrowers in
the form of higher rates.
2010 FHA restructured its fees, raising its annual premiums to 85 to 90 basis
points depending on loan-to-value ratios while lowering its upfront premium by
100 basis points. Since then the FHA has
tweaked these fees upward, adding substantially to first time buyer costs.
The Center says the outlook
for homeownership depends on a strengthening economy which will eventually lift
household incomes. Despite recent
increases, house prices and interest rates still favor the homebuyer although
many younger adults will continue to find themselves in income, family, and
household circumstances that do not promote homeownership. Further, minorities will account for an increasing
share of first-time homebuyers and mortgage markets must figure out how to
accommodate the limited financial resources of this new generation of