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 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.

Home Ownership Month

by Dan Krell

June is here! For many it means that summer is around the corner, school is ending, and trips to the beach. For Realtors and community groups, June is National Homeownership Month.

Since 2002, President Bush has declared June as National Homeownership Month. By doing so, the goal has been to increase minority home ownership to 5.5 million new home owners by the end of the decade. Despite a declining real estate market, home ownership is at record highs. The White House reports that there were 75 million American homeowners during the fourth quarter of 2006, while the homeownership rate was close to sixty-nine percent.

In keeping with the goal, the President and the Congress have passed a number of laws to promote home ownership including The American Dream Downpayment Act, HOME Investments Partnerships Program, and the Self-Help Homeownership Opportunity Program.

In 2003, The American Dream Downpayment Act was signed into law. The program was designed to offer down payment and closing cost assistance to low income home buyers. According to the White House, the program has helped over 21,000 families since its inception. Information for local participation and qualification can be obtained through the Montgomery County Department of Housing and Community Affairs.

The HOME Investment Partnerships Program, which was part of the Title II of the Cranston-Gonzalez National Affordable Housing Act, is a federal block grant that allocates almost $2 Billion annually to create affordable housing for low income families. This program has been so successful that it is reported that more than 143,000 families used this program to purchase a home during the 2006 fiscal year.

In keeping with the spirit of home ownership, the Self-Help Homeownership Opportunity Program was created. This program provides non profit organizations, such as the Habitat for Humanity (habitat.montgomery.md.us), the funds necessary to purchase home sites for the purpose of building or renovating by sweat equity and volunteer-based homeownership programs for low-income persons and families. Local programs, such as Habitat for Humanity, offer the resources to families to own affordable homes as well as retaining home ownership by making repairs that they could not otherwise make.

Looking ahead, the 2008 Federal budget includes funding for the “modernizing” of FHA (see my column from the week of May 17, 2007). The expansion of FHA will provide financing alternatives to sub-prime loans for home buyers while offering additional protection from and assistance for those in foreclosure.

Home ownership is the American dream. However for many families, it is still out of reach. Locally, the Maryland Association of Realtors, in conjunction with a coalition with home owners and those who want to be home owners, has created the League of Maryland Homeowners (leagueofmarylandhomeowners.com). The group is committed to making affordable housing available by searching and implementing solutions to the affordability crisis in housing.

There are many opportunities to assist others in their pursuit to home ownership. For example, the Tikvat Israel Congregation of Rockville is sending a contingent of high school students to New Orleans, LA later this month to assist the Habitat for Humanity effort in the still ravaged region.

Although we celebrate home ownership in June, we can make a difference year round from volunteering manual labor to as little as voicing your support for affordable housing initiatives.

This article was originally published in the Montgomery County Sentinel the week of June 4, 2007. Copyright © 2007 Dan Krell.