Last month, the U.S. Census Bureau reported that the homeownership rate for the second quarter of this year was 63.4 percent—a rate that has not been seen since 1966, and a sizeable drop from the 69.2 percent peak recorded at the end of 2004.
Should the mortgage world be worried that the homeownership rate is reaching depths not seen in nearly a half-century? According to industry leaders, the answer is no—if only because the situation is outside of the industry’s control.
Logan Mohtashami, an Irvine, Calif.-based senior loan manager at AMC Lending Group and a financial blogger at LoganMohtashami.com, observed that it is a mistake to accept the homeownership rate as a static entity.
“We are working off an artificial high,” said Mohtashami. “There were an excess number of people who shouldn’t have been homeowners who were buying homes.”
Mohtashami added that the homeownership rate peak of the previous decade was also the result of many mortgage products that are now extinct.
“Without exotic loans, first-time homebuyers are not owning, but renting. We have legitimate buyers now,” said Mohtashami.
Rocke Andrews, president-elect of NAMB—The Association of Mortgage Professionals and broker/owner at Tucson, Ariz.-based Lending Arizona LLC, agreed that the quality of homeowners today needs to be valued.
“Not everyone is made out to be a homeowner,” Andrews said. “We got a little ahead of ourselves trying to fit everyone into homeownership.”
Edward Pinto, co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute (AEI) and a former Fannie Mae chief credit officer, also noted that the decreasing homeownership rate is being influenced by the increased removal of people from foreclosed properties.
“We are still working off the foreclosure backlog that has still been around for the past seven to eight years,” Pinto said.
Pinto added that, despite the low rate of homeownership, there is a fast-growing level of home sales.
“We have a rip-roaring purchase market going on right now and it is not abating,” Pinto commented. “If you look at the trends over the years and not month-to-month, you will see there are huge increases going on. Purchase data is increasing by 20 percent year-over-year.”
But this does not mean that the homeownership rate cannot be higher than it was in 1966—especially when one considers the greater volume of potential homeowners today. Andrews admitted that many are avoiding the idea of buying a house for the wrong reason.
“There is a large percentage eligible for home loans who don’t think they are,” Pinto said. “We need to educate them on the possibility of homeownership—especially in places where it is cheaper to own than to rent. They need to understand that this is not just a long-term investment, but it is also better for their budget in the short term.”
There is also a bigger problem keeping the homeownership rate: The absence of the full thrust of the Millennial demographic from the market.
“Millennials are kind of delaying everything,” said Amy Crews Cutts, chief economist at Atlanta-based Equifax. “They are not buying cars or houses, and they are not getting married and having babies at the same rate as previous generations.”
Cutts added that Millennials may not be purchasing houses at a great rate now, but that doesn’t mean it is completely off their “To-Do List.”
"If they are delaying [purchasing a house] until they are in the 30 to 35 age range, then the homeownership rate will go up,” said Cutts.
Still, this demographic has its’ own trepidations that need to be acknowledged.
“The Millennials coming in are a very, very different group of people,” said Sue Woodard, CEO of Vantage Production, based in Red Bank, N.J. “The challenge is going to be strengthening relations and determining how to reach this generation that distrusts banks.”
Becky Walzak, president of Indianapolis-based Looking Glass Group LLC, noted that Millennials considering homeownership would probably not be interested in suburban starter homes.
“They are looking more to condos or homes in cities,” Walzak said. “They don’t want to spend two-and-a-half to three hours a day in their cars commuting to and from work.”
But Scott Stucky, chief strategy officer for DocuTech in Idaho Falls, Idaho, observed that home builders are not necessarily setting the stage for a Millennial buying rush.
“In certain markets, builders are starting to rally and have properties for first-time homebuyers,” Stucky said. “Traditionally, these would be targeted to Millennials. But Millennials tend to want urban settings, and most first-time homebuyer homes are located on the edge of urban sprawl—so there is a misalignment of market requirements.”
Yet even if Millennials were seized with the sudden desire to become homeowners, there are more than a few obstacles in their path.
“Many Millennials are carrying extremely high student loan debt,” said Matt Clarke, chief operating officer at Brentwood, Tenn.-based Churchill Mortgage Corporation “Housing prices are increasing quickly, and there is a lack of credit. With the extremely high rents that many are paying, it is difficult for anyone to try to save up for a house. Plus, there is not enough inventory for people to move into a buy.”
Rick Roque, principal with Washington, D.C.-based Menlo Company, pointed out that Millennials are not the only ones being shut out of homeownership.
“Since the [2008] collapse, there has been a concentration of wealth in upper classes because the middle income-earning American hasn’t recovered,” said Roque. “This has created a reverse mushroom effect: A growth of income and wealth in professional classes and an economic reversal in blue collar labor class.”
And while all of these circumstances are outside of the control of mortgage professionals, there is one area where the industry can encourage more people to qualify for homeownership.
“The industry has to develop more products and become better lending on non-conventional properties like condos,” said Bill Lowman, president of Roseville, Calif.-based American Pacific Mortgage. “We need to lead on these types of properties.”
