The shape of homeownership and housing markets has changed dramatically over time and will continue to change in the face of new housing opportunities and challenges. That’s according to panelists at the “Challenges and Opportunities in Housing and Homeownership” session during the Realtors 2013 Midyear Legislative Meetings & Trade Expo. During the session academics from DePaul University, George Mason University, University of North Carolina and the University of Maryland presented various research and data illustrating the impact of shifting demographics, new mobility patterns and an uncertain interest rate environment on future housing prices, availability and affordability. Funding for some of the research was provided by the Realtor University Center for Real Estate Studies.
“The residential mobility rate in the U.S. has been falling steadily since the 1990s, when it was approximately 20 percent, to its current level of 12 percent,” said National Association of Realtors (NAR) Chief Economist Lawrence Yun. “The decline is unwelcome news since it may imply a reduction in economic mobility. Mobility is currently being impacted by the lack of housing inventory since fewer homes are available. In the future, proposed regulations requiring larger down payments could also significantly reduce mobility since fewer homeowners may be able to afford a home.”
Lisa Sturtevant from George Mason University’s Center for Regional Analysis said recent trends in residential mobility are most likely the result of changes in the age distribution of the population. She said the two largest segments of the population – baby boomers and millennials – are delaying many major lifecycle events that have been traditional for their respective life stages, like marriage, children and retirement. That also means they are not moving as much as members of previous generations at the same life stages, which could be dragging down the overall residential mobility rate.
“Homeownership rates have declined fastest for millennials, most likely the result of fewer job opportunities and higher student debt; however, I believe they still want to become owners and will eventually make their way into the housing market,” said Sturtevant. “When they do enter the market they’ll care about different things than previous generations too; I foresee more single people buying smaller homes in urban areas.”
Yun agreed that the recent housing downturn hasn’t change younger buyers’ attitudes about homeownership, despite many of them delaying their entrance into the market. “Rather, reduced home prices and lower interest rates have provided an opportunity for younger buyers to affordably enter the housing market,” he said.
James D. Shilling from DePaul University’s Institute for Housing Studies shared his insights into recent trends in household mobility and its future impact on the single-family housing market.
“Higher home prices will unlock a large number of households with negative or low equity and incentivize them to get off the sidelines and into the housing market. However, combined with future increases in interest rates, the net effect is likely an overall reduction in residential real estate transactions and household mobility,” said Shilling.
He anticipates the Federal Reserve will keep mortgages rates low through 2013 and most likely into 2014; consequently the majority of current homeowners will have mortgages with loans rates near record lows, and when rates start to rise they will not be incentivized to give up those low-rate loans to buy a new home with a higher rate mortgage.
Lucy Gorham from the Center for Community Capital at the University of North Carolina offered her perspective into housing policy implications for homeowners, including proposed regulations requiring higher down payments from home buyers. She said while restrictive underwriting helps lower loan defaults, it disenfranchises a higher percentage of creditworthy borrowers; if 20 percent down payments were required, as many as 60 percent of current buyers could be outside of the qualified mortgage criteria and potentially face higher interest rates or fees.
“Despite the recent housing crisis, homeownership continues to help build wealth for lower to middle-income households. A safe mortgage product with good underwriting helps lower loan defaults; requiring greater down payments simply closes off access to a greater percentage of borrowers,” said Gorham.
Imposing higher downpayment requirements would negatively affect low- and moderate-income households and disproportionately impact minority homebuyers, she said. Gorham said minority families tend to have lower wealth and greater need for access to mainstream sustainable loan products, and that more will need to be done to meet their credit requirements since minority families are expected to be the greatest source of future housing demand.
Margaret McFarland, Colvin Institute of Real Estate Development at the University of Maryland, agreed that excessive risk reductions requiring higher down payments and credit scores exclude too many well performing loans from the market.
“Federal Housing Administration loans are an important financing option for affordable homeownership,” McFarland said. “Veterans Affairs home loans also perform very well in relation to other mortgage products, even with a zero down payment.”