Can Green Housing Oomph Up the Mortgage Market?
With mortgage application levels remaining at a somewhat stagnant position in recent weeks, it is not difficult to seek out what potential trends could help lift the application volume to a higher level while giving the purchase activity a greater sense of power.
The latest data confirms a continuing sense of inertia. According the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending July 25, the Market Composite Index decreased 2.2 percent on a seasonally adjusted basis and decreased two percent on unadjusted basis from the previous week. However, the seasonally adjusted Purchase Index increased 0.2 percent from one week earlier. The unadjusted Purchase Index increased one percent compared with the previous week, but was 12 percent lower than the same week one year ago. The Refinance Index decreased four percent from the previous week, while the refinance share of mortgage activity decreased to 53 percent of total applications from 54 percent the previous week.
One potential source of energy for the housing market could be, appropriately enough, housing that makes an intelligent use of energy.
According to the new study “Green Multifamily & Single Family Homes: Growth in a Recovering Market,” published by McGraw Hill Construction, builder and remodeler members of the National Association of Home Builders (NAHB) are reporting a strong increase in the volume of green building for single-family homes. The study finds that builders and remodelers in both the single family and multifamily sectors recognize the value of going green: 73 percent of single family builders and 68 percent of multifamily builders say consumers will pay more for green homes.
Furthermore, the study found the most striking shift in the single-family market involves firms dedicated to green building (defined by the study as “doing more than 90 percent of their projects green”). The current percentage is already at 19 percent and it is expected to double to 38 percent in four years.
“Greater consumer interest in green homes has contributed to the ongoing growth, leading us to anticipate that by 2016, the green single family housing market alone will represent approximately 26 percent to 33 percent of the market, translating to an $80 billion to $101 billion opportunity based on current forecasts,” said Harvey Bernstein, vice president of industry insights and alliances for McGraw Hill Construction. “The findings also suggest that lenders and appraisers may be starting to recognize the value of green homes, making it a factor that could help encourage the market to grow if there is more widespread awareness across the U.S.”
However, some parts of the country have not yet caught the full whoosh of the green housing trend.
“I don’t know if New York has a big area of green houses available,” stated Heidi Frigano, executive vice president of marketing and business development for Levittown, N.Y.-based United Northern Mortgage Bankers Ltd. “I don’t know if we’ve experienced that yet.”
Jim Simcoe, CEO of Encinitas, Calif.-based Simcoe Green Homes, acknowledged that the green housing trend is only now rolling out on a wider basis.
“Five years ago, I would have said it was more of a California and Seattle/Northwest trend,” Simcoe said. “As people become more educated on green housing and green building, the question becomes how valuable they think it is.”
Simcoe stated that the growing interest in green housing could have a strong influence in stabilizing the housing market. “Without a doubt—there is too much opportunity and the economics of it make too much sense right now,” he said. “It is a trend that people are definitely interest in. And there is no need to buy new homes—this can be done with existing housing.”
Dr. John Beldock, executive director of the Association of Energy and Environmental Real Estate Professionals and CEO of EcoBroker International, both based in Evergreen, Colo., is supportive of the NAHB’s assertions on the power of the green housing market.
“Depending on how one defines green housing market, that is not an unreasonable statement,” Dr. Beldock said. “It would not be unreasonable to suggest by that date, one-third of new construction would have some element of energy efficiency and/or renewable energy technologies or benefits – something as simple as ENERGY STAR appliances or an energy efficient HVAC system. At the other end of the spectrum, might be more difficult to see one-third of houses produced by that have an energy rating on them by any one of a dozen home energy rating systems. Still, when lenders are lending on better assets to better buyers with better loans, it will improve the quality of housing market.”
“When one unveils the fact that this increased percentage in the green market represents an $80 to over $100 billion dollar opportunity, it is no great epiphany that builders would choose to jump on the green bandwagon,” observed Chris Sorensen, director of mergers and acquisitions at Corona, Calif.-based Paramount Residential Mortgage Group Inc. (PRMG) and author of Financial Sense to White Picket Fence. “I believe the projections and I believe they will only increase. As the first time homebuyer market takes off, this group will be lured to the builders who can afford to create a green image, others will quickly follow suit. What will be interesting is to see how long it will be before the FHFA is pressured into offering incentives for mortgages on these homes.”
Sorensen added that this development represents a win-win situation for builders, lenders and homeowners.
“Anything we can do to make a home more energy efficient and use landscaping that will reduce water usage while maintaining an optically pleasing view will find few detractors,” Sorensen said.
However, Brian Coester, CEO of Rockville, Md.-based Coester Valuation Management Services, cautioned that the study’s definition of “green” could be considered a bit vague and broad.
“They are not talking about ‘super green’ improvements, like solar panels,” Coester said. “It is more about using materials that are environmentally friendly and energy efficient. This is a natural next step, but it is not that 25 percent of homes will soon be off the grid.”
Still, Coester believed that the near-future of housing will have a greener hue. “We are heading in the right direction and getting close,” he added. “The fact they are talking about it is important.”
FMJ Job Listings
- MPF Program Supervisor - FHLBank Pittsburgh - Pittsburgh, PA
- Vice President of Finance - Municipal Employees Credit Union of Baltimore - Baltimore, MD
- Investment Analyst - Commercial Real Estate Finance - NorthMarq Capital - Raleigh, NC
- Home Loan Operations Manager - AAA Michigan/The Auto Club Group - Dearborn, Michigan
- Internal Audit - Citywide Home Loans - Denver, CO
- Salesforce Administrator / Non-Technical Project Manager III - Fannie Mae - Washington, DC