The homeownership rate is projected to decline in upcoming years, as demonstrated by the first quarter data. The continued decline in homeownership can be attributed to the stubbornly high delinquency rates and the eminent foreclosure of millions of borrowers, coupled with the narrowing of access to mortgage credit to all but the least risky borrowers. The impacts of these conditions disproportionately affect minority borrowers. Although increases in HARP volume should arrest the rate of foreclosure for strategic defaulters, these loans are very high risk and remain in a precarious position - vulnerable to another leg down in housing or loss of employment.
On July 27, the U.S. Census Bureau and Department of Commerce will release the second quarter data for residential vacancies and
homeownership levels in the U.S.
The data will give the government, the media and the public the opportunity to observe how the upcoming election, the Obama Administration’s initiative to augment borrower relief efforts, and some surprisingly poor employment figures in May have impacted the domestic homeownership rate and other housing indicators.
The first quarter research showed a homeownership rate of 65.4, which represented a one percent year-over-year decline and a 0.6 percent decline from the last quarter of 2011. The continued decline in homeownership can be attributed to continued delinquencies and the narrowing of access to mortgage credit. The impacts of these conditions disproportionately affect minority borrowers.
Delinquencies and foreclosures continue to sustain higher rates for African American and Hispanic borrowers as compared to White borrowers. According to recent data from the American Association of Retired Persons (AARP), minority borrowers had nearly double the rate of 90+ day delinquencies and foreclosures of White and Asian borrowers. Census Bureau data reveals that the rate of homeownership among White borrowers has only dropped about two percent since 2008 to 73.5 percent, while the homeownership rate for African Americans has fallen by nearly five percent and is significantly lower than White borrowers at 43.1 percent.
Projected foreclosures in the future are likely to continue to drive down the homeownership rate, which is calculated by dividing the number of the number of owner-occupied units available by the number of occupied housing units. The estimated two million new foreclosures to enter the housing market in the coming years will decrease the denominator, which will lower the homeownership rate.
A recent report from Capital Economics confirms that the homeownership rate is likely to decline to 64 percent over the next three years. It’s important to remember to put these numbers in context – every one percent decline in the housing rate means that there are roughly 1 million less homeowners.
Still, the second quarter numbers, or at least, the third quarter numbers for this year may not show considerable decreases due to increases in refinance volume, in particular Home Affordable Refinance Program (HARP) volume.
The Mortgage Bankers Association’s (MBA) Weekly Application Survey showed rapid gains in the Refinance Index of 22 percent. Refinances accounted for over 80 percent of total application volume, and HARP applications made up 24 percent of the total refinance applications. These HARP refinances ideally, prevent homeowners from defaulting, or distressed homeowners from entering foreclosure and placing downward pressure on the homeownership rate.
The Federal Housing Finance Agency (FHFA) also reported that 20 percent of refinance volume in May was attributed to HARP refinances. In 2012, over 78,000 HARP refinances have been completed.