Homeownership crisis?

homeownership crisis
Homeownership Crisis? (infographic from keepingcurrentmatters.com)

The housing market made significant strides last year with regard to home sales and home prices.  However, even with housing’s good news, the homeownership rate continues to be at generational lows.  Economists and real estate professionals are stumped. Is there a homeownership crisis?

The homeownership rate for the first quarter of 2017, reported by the U.S. Census Bureau (census.gov), was 63.6 percent.  This is a slight improvement from homeownership rate recorded in 2016.  However, in their analysis, the Census Bureau stated that when the rate is adjusted for “seasonal variation,” there was no statistical difference from the 63.5 percent rate recorded in the last quarter of 2016.

homeownership
Homeownership Rate (historical data from census.gov)

The homeownership rate peaked at 69.2 percent in 2005, but has steadily declined since the Great Recession. Industry experts have been flummoxed as to why there have not been more home buyers taking advantage of historically low interest rates in an upward economy. (Freddie Mac reported last week that the national average interest rate for a 30 year fixed rate mortgage was 3.94 percent; freddiemac.com). Even mortgage lending has become looser, as some mortgage companies have rolled out low and no-down payment programs in recent months.

A homeownership crisis in the making, why is there lack of interest in homeownership?  A recent study co-sponsored by the Fisher Center for Real Estate and Urban Economics, UC Berkley and the Rosen consulting Group (Hurdles to Homeownership: Understanding the Barriers; June 2017) asserted to have the answer to this question.  According to a NAR press release (realtor.org), the study was announced this month in honor of National Homeownership Month, and presented at the National Association of Realtors Sustainable Homeownership Conference.

The authors discussed regulatory issues that has hindered housing and mortgage lending.  They also identified issues affecting would-be home buyers, which include: student debt; availability of mortgages; housing affordability; low home sale inventory; and “post-foreclosure stress disorder.”

You may already have heard much about regulatory issues, consumer debt, mortgages, affordability, and low housing inventory.  But, what is “post-foreclosure stress disorder?”  The Rosen Consulting Group coined the phrase to give a name to the concept of perceived home buying risks derived from a financial crisis.

Even though a number of consumer surveys continue to indicate a strong positive sentiment towards homeownership, the authors point to post-foreclosure stress disorder as a major influence on home buying decisions.  They believe that many individuals have been directly and indirectly affected by the Great Recession, and therefore have changed their behaviors based on perceived financial risks.  And the greater the financial risk, the greater the caution exercised.  They claim this is confirmed by a Federal Reserve survey where 80 percent of respondents indicated they would like to own a home someday, but only one in six who were financially able to purchase a home felt that renting was the best choice for now.  The authors stated that although the trauma of the Great Recession will fade over time, they assert the need to rebuild confidence in homeownership benefits.

Post-foreclosure stress disorder may account for a decline in the homeownership rate, but this is not a homeownership crisis.  It is shift in values and a major shift in lifestyles. Surveys have indicated that millennials are expected to be the largest group of homebuyers, but many millennials don’t want to be anchored by owning a home. They want to be able to take advantage of global opportunities without the burden of having to sell a home.  There is a shift away from the old standard of being house-centric to mobility.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

When transfer tax becomes controversial

real estate
from marylandreporter.com

The legislative process encourages discourse for proposed legislation.  The result is a bill that is passed or defeated.  Regardless, proposed housing market and real estate legislation is not typically exciting; and in fact the minutia of the bill can be downright boring and/or confusing.  However, there are occasions when proposed legislation has the potential to affect home owners and buyers such that it can create a brouhaha.

First, let’s review a few bills passed by the Maryland General Assembly: The first has to do with agency.  Currently, “licensees” are required to provide the Maryland Real Estate Commission’s Understanding Whom Real Estate Agents Represent at the time of first face to face meeting and is a notice to the consumer.  The disclosure explains seller’s agents, agents who represent the buyer, and dual agents.  For many home buyers, the first face to face meeting of an agent is at an open house, and are supposed to be given the disclosure by the agent sitting at the open house regardless if the buyer has an agent or not.  The new law is to simplify the disclosure, eliminating redundant notices and allowing agents at open houses to post who they represent instead of the asking every visitor to sign the disclosure.

Another change is how agents recommend service providers.  The current requirement is for agents to check the licensing status of all recommended service providers, ensuring that the provider is currently licensed in Maryland.  The new law will only require agents to annually check home improvement licenses of recommended contractors.

The General Assembly also passed legislation that will require home sellers throughout the state to disclose deferred water and sewer charges. Additionally, legislation was passed that adds requirements to the state brokerage licensing exemption for attorneys.

Still with me?  Good.  Local residents should be aware of the Montgomery County Council’s attempt to fast track a bill to increase the county’s recordation tax on real estate transactions.  On April 14th, Expedited Bill 15-16, Recordation Tax – Rates – Allocations – Amendments was introduced by Council President Nancy Floreen.  Recordation tax is collected when a home is sold, and when a home owner refinances a mortgage.  If passed, it will become effective July 1st 2016 (which is about 2 months from now!).

The Greater Capital Area Association of Realtors® issued an April 18th press release opposing the bill, stating that it unfairly targets home buyers and home owners by increasing a tax that is already among the highest in the state.

In an April 12th memorandum to Councilmembers (page 7 of pdf) Councilmember Floreen stated: “While nobody likes the idea of increasing taxes of any kind, our needs are great, and this tax is less likely to affect those Montgomery County residents who are struggling most. On the up side, it will generate millions of dollars to support our desperate need for new schools and educational facility improvements. What’s more, a portion of the recordation tax is earmarked for affordable housing.”

Although aspirations for certain projects may be well intentioned, Councilmember Floreen should consider that further burdening home buyers in an already high cost area for real estate could impact homeownership and make “affordable housing” less affordable.  Furthermore, the average Montgomery County home owner refinancing their mortgage may not be struggling, but they are trying to get by the best they can in a high cost of living area.

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Housing and presidential election

from trulia.com

Another presidential election, and there will most likely be very little discussion and debate about housing policy. During the 2012 presidential election, housing seemed to take a back seat as the real estate market was still emerging from a foreclosure crisis and recession just four years earlier. Fast forward to today and homeownership is hovering near a 30-year low.  Homeownership is out of reach to many due to tightened mortgage qualifying and increasing home prices; while Americans’ incomes are being squeezed by rising rents.

Enter Ron Terwilliger. A successful real estate developer and philanthropist, Terwilliger launched the J. Ronald Terwilliger Foundation for Housing America’s Families in 2014 (jrthousing.org). The organization’s mission is to “…recalibrate federal housing policy to more effectively address our nation’s critical affordable housing challenges and to meet the housing needs of future generations.”

Giving the keynote address at The Affordable Housing Developers Summit in Chicago, Terwilliger described an evolving “silent housing crisis.” He proclaimed that “A legacy of the great recession, the rental affordability crisis is often overlooked by policymakers, ignored by the media, and underestimated, at best, by the general public.” And although affordable housing is a bi-partisan issue, he stated that candidates don’t talk about the issue (housingfinance.com).

New HomesSo it should come as no surprise that the J. Ronald Terwilliger Foundation for Housing America’s Families and the Bipartisan Policy Center hosted a housing summit this past October. Speaking at the summit were a number of presidential candidates, policy makers, current and former Senators, a former HUD Secretary, local officials, and industry leaders and experts. Unfortunately, the presidential candidates that are still in the race, did not participate. The summit was held in New Hampshire, where housing costs for 36% of residents is more than 30% of their gross income; and median rents have increased 50% since 2000 (housingwire.com).

The housing summit seemed to inspire realtor.com chief economist Jonathan Smoke, who shortly afterward penned a statement declaring his candidacy for president as leader of the “Housing Party” (As President, I’ll Make American Housing Great Again—Really; realtor.org; October 21, 2015). Smoke believes that housing should be first on the national agenda stating, “The market won’t solve all of our housing problems on its own. And our government seems incapable of working together to find solutions that can help…” Laying out a detailed platform, Smoke proclaims that a vote for him would “…build our way to a stronger economy and more affordable housing for the middle class—a better America for all of us.” He said that he would work toward getting a home for every family.

But it may be that housing policy is a bit more complicated than just proclaiming “homes for everyone.” In a frank analysis of housing policy, Daniel Hertz laid out what seems to be diametrically opposed positions: policy should keep housing affordable so as not to price people out of the market; and policy should protect house values, because homes are an investment and wealth building vehicle (American Housing Policy’s Two Basic Ideas Pull Cities in Opposite Directions; theatlantic.com; October 14, 2015).

Hertz believes that these seemingly opposite policy positions can be “reconciled” by offering a wide variety of housing types for a broad range of incomes. Additionally, he discussed how local privately developed affordable housing programs (such as Montgomery County’s Workforce Housing and MPDU programs) is one avenue to a comprehensive housing policy.

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Helping family with homeownership

real estateThe holiday season is about spending time with family and enjoying each other’s company. But as a consequence of the Great Recession, some family members (including adult children) have made “family time” a year round thing by moving in. Whether it’s a child moving back with parents after college, or maybe family who suffered a financial hardship; having accommodating family can be a blessing. However, as the economy slowly improves, the post-recession family nesting trend is changing and many are (re)establishing their own homes.

Some people are taking advantage of an improving housing market to create one of the recent housing trends – purchasing an investment property to “house” family members. Although the benefits of purchasing an investment property and having family live there may not be obvious, some realize that it can be mutually beneficial. Having a trusty and inherently loyal family member live in the rental property can mean a regular rent check, as well as ensure that the home is maintained. As with any investment property – the longer you own it, the greater potential for long term equity.

Some are banking on recent rising home values and taking out a home equity line to purchase investment homes, although some are fortunate to have the assets to pay cash. However, many rely on financing the property, which requires a hefty down payment (typically 20%) as well as an interest rate slightly higher than that of the owner-occupant mortgage you might have on your own home. And although buying an investment property to house family members sounds as if it is a no-brainer to get them out of your own house; due diligence is required to determine if this is advantageous for you, as well as consulting with your tax preparer about tax benefits and/or consequences.

If buying the investment property is not an option, you may be able to help family qualify for a mortgage of their own. Although FHA mortgages are typically common among first time home buyers and/or buyers who need a low down payment loan; FHA has been the go-to program for helping family buy a home –especially when the home buyer falls short of qualifying on their own because of a lack of employment history, assets, and qualifying income. Although Fannie Mae, Freddie Mac and VA permits co-borrowers who are not intending to live in the home to co-sign for family; FHA has additional features that may make the loan more attractive. Besides allowing family to gift the borrower’s down payment, FHA may allow alternate credit sources to be substituted when the borrower has insufficient established traditional credit.

Although “co-signing” as a non-occupying co-borrower might help your child or some other family member become a home owner, it should not be taken lightly. You have to consider that even though you do not intend to live in the house or make the mortgage payments, you are signing the mortgage note. Not only could you be held responsible if payments are not made, your credit may even be dinged even if payments are late.

Although there are benefits to having extended family live together, you might be thinking of helping them start their own household. Before making any decisions, do your due diligence. And talk to several lenders, as with any mortgage loan program – underwriting varies from lender to lender and guidelines typically change without notice.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Homeownership, freedom and independence

While we enjoy the barbecues and fireworks that come along with the Fourth of July Holiday, we might take a moment to think about our freedom and independence. And of course – homeownership is an expression of those liberties which is part of the “American Spirit” that drives us to achieve the American Dream.

The American Dream is not dead, as some will have you believe; the dream of homeownership is like a phoenix that is renewed after the fire, and is resumed by a new generation of home buyers. In his April 2009 Vanity Fair article “Rethinking the American Dream,” David Kamp gave a wide perspective of the American Dream; from its origin to diametrically opposed viewpoints. In his conclusion, Kamp states, “…The American Dream should accommodate the goal of home ownership, but without imposing a lifelong burden of unmeetable debt. Above all, the American Dream should be embraced as the unique sense of possibility that this country gives its citizens—the decent chance, as Moss Hart would say, to scale the walls and achieve what you wish.

As we emerge from the housing and financial crises, many are discussing the benefits of homeownership once again. Even after the Great Recession, many prefer owning a home over renting. Survey after survey indicates that a majority of respondents positively viewed homeownership as a desire or goal (Rohe & Boshamer, Reexamining the Social Benefits of Homeownership after the Housing Crisis, Joint Center for Housing Studies Harvard University, August 2013).

So what is it about homeownership that makes it an aspiration for so many of us? Besides the fact that we all need a place to live; a home is an asset that has relative value to the housing market at any given time. Housing is also still perceived by many as an investment that can appreciate over a period of time. Additionally, those who have a mortgage on their home may be able to take advantage of the mortgage interest tax deduction (check with your tax preparer).

Home owners are more inclined to maintain their homes and neighborhoods, as well as being invested in protecting their home and community; which may account for lower incidences of reported crime. Besides stabilizing communities, many of these benefits may also account for positively affecting home values.

Additionally, there has been a lot said about the social benefits of homeownership. A National Association of Realtors® blog post by Research Economist Selma Hepp, titled Social Benefits of Homeownership and Stable Housing lists many of the documented social benefits. She cites that home owners tend to: be more charitable; participate more in their community (including voting); have an increased connection to their neighborhood and neighbors; have an increased general positive life outlook; express an increased self esteem and higher life satisfaction; and be healthier.

There are many studies that also indicate homeownership benefits children. Hepp includes some of the benefits of children living in owned homes, which include: lower teen pregnancy rate; higher test scores; higher high school graduation rate; decreased delinquencies; and an increased participation in organized activities.

Although June was officially declared “Homeownership Month” in 2002; July is a more appropriate month because of homeownership’s association with freedom, independence, and the American Dream.

© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. This article was originally published the week of June 30, 2014 (Montgomery County Sentinel). Using this article without permission is a violation of copyright laws. Copyright © Dan Krell.