Homeownership: Is the Opportunity There?

House in Chains BHThe housing crisis is generally regarded as over in 2016, about eight years after it began. But while mortgages are performing better and the default space occupies a much smaller portion of the mortgage industry than it did at its peak six years ago, one troubling stat lingers.

The nation’s homeownership rate took a step back in the first quarter after showing some improvement in the last two quarters of 2015. At 63.5 percent, Q1 2016’s homeownership rate is only 10 basis points higher than Q2 2015’s 48-year low of 63.4 percent.

In an effort to promote homeownership, HUD has declared June to be National Homeownership Month with the theme of “Dare to Own the Dream.”

“Homeownership Month is a good time to reflect on the progress the Obama Administration has made to ensure that owning a home is always within the grasp of the average American family. A home is the place where we raise our children, establish roots in a community and plan our future,” said HUD Secretary Julián Castro. “The opportunity to be a homeowner should be open to those ready and able to buy a home. As the housing market continues its recovery we must ensure that responsible homeowners have access to credit to make their dreams of homeownership a reality.”

The homeownership rate in the U.S. has declined significantly since peaking at 69.1 percent in the fourth quarter of 2004. Why the five-decade low homeownership rate now eight years post-crisis and with so many mortgages, particularly those originated in 2009 or later, performing better? Is the opportunity to be a homeowner there for those who are ready and able?

One of the major impediments to homeownership has been regulation—or rather, too much of it, according to some stakeholders.

“Regulations affect virtually every aspect of home building, from lot development to the builder’s choice of construction materials,” said Ed Brady, Chairman of the National Home Builders Association. “Typically, regulations account for about 25 percent of the cost of a new home. There’s no question that regulations have a place in the home building process, but we want them to be reasonable, rational, and cost effective. In light of this, the NAHB works with regulators to fend off a wide range of unnecessary regulations.”

“The opportunity to be a homeowner should be open to those ready and able to buy a home.”

HUD Secretary Julián Castro

Consistently tight inventory has been another major barrier to homeownership. Redfin reported this week that its Housing Demand Index had declined by 5 percent year-over-year in April (the fifth straight month of declines) amid constrained housing supply.

Another major obstacle to homeownership has been affordability. Edward Pinto, co-director of the American Enterprise Institute’s International Center on Housing Risk, stated in a white paper written for the Urban Institute’s Housing Finance Policy Center this week, “Homes are less affordable today, standing at a multiple of 3.32 times median home price and median income compared with 2.95 times in 1979 or 2.86 times in 1992. A new round of increasing loan leverage began after 1992, the year Congress imposed government-sponsored enterprise (GSE) affordable housing mandates. This helped drive home prices to unsustainable levels (4.05 times in 2006). After hitting a trough of 3.03 times in 2012, the ratio now stands at 3.32 times.”

And among millennials, which many analysts have cited as a key demographic to raising the homeowership rate, student loan debt has become an increasingly heavy burden and therefore a barrier to homeownership. The aggregate amount of student loan debt in the U.S. has tripled in the last 10 years up to more than $1.2 trillion, according to Freddie Mac.

HUD will host a series of Twitter chats throughout June to discuss three important topics surrounding homeownership. Follow these chats with #OwntheDream. Topics include: “Are you ready for homeownership?”; “How to know if an FHA loan is right for you”; and “Is housing counseling for you?”

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