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.
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
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
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
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, “s still failing to keep up with
demand as cities see increased migration and population as the result of faster
job growth. The insufficient level of
homebuilding has created a cumulative deficit of nearly 3.7 million new homes
over the last eight years.”
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
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.