Tag Archives: United States Department of Housing and Urban Development

JCHS: Why We Should Care About the Great Recession’s Most Unfortunate Victim: Homeownership

Why We Should Care About the Great Recession’s Most Unfortunate Victim: Homeownership

 by Rob Couch
Guest Blogger
From time to time, Housing Perspectives features posts by guest bloggers. This post was written by Rob Couch, a member of the Banking and Financial Services, Real Estate and Governmental Affairs practice groups at the law firm Bradley Arant Boult Cummings in Birmingham, Alabama.  Rob also serves on the Housing Commission of the Bipartisan Policy Center in Washington, DC..  Previously, he served as General Counsel of the U.S. Department of Housing and Urban Development and as President of the Government National Mortgage Association (Ginnie Mae). His post reflects thoughts he shared at a Brown Bag Lecture delivered at the Harvard Kennedy School on November 14, 2013.In my lunchtime talk at the Harvard Kennedy School, sponsored by the Joint Center for Housing Studies, I discussed why recent government efforts enacted in the wake of the financial meltdown have caused increasingly stringent underwriting standards. These efforts have resulted in fewer homeowners, particularly first time purchasers, and the widening of the homeownership gap between certain minorities and white Americans. One of the questions from the audience during my talk came from a young man who challenged the continuing validity of the “Dream of Homeownership.”

After the bubble of 2007, some might think homeownership isn’t as worthy a goal as it used to be. In particular, younger Americans who have recently witnessed homeowners suffer financial loss or foreclosure due to declining home values or job loss may be especially wary.  A sizable percentage of young people are not yet in a stable career and want the flexibility that renting offers, and many young Americans who do want to own a home cannot meet underwriting criteria or afford a down payment given the combination of student loan debt and high unemployment.

Nonetheless, as Eric Belsky explains in his paper, The Dream Lives On: The Future of Homeownership in America, most young adults surveyed say they intend to buy a home in the future.   Furthermore, the results of several surveys cited in Belsky’s paper reveal that a majority of both owners and renters believe that owning makes more sense than renting. And for good reason; numerous studies have confirmed the economic and societal benefits of owning a home.

As a homeowner makes payments against his mortgage, and as the value of the property appreciates, the borrower’s equity in the home increases. If necessary, this equity can be accessed though the sale of the home or through a “cash out” refinance or a revolving line of credit. Homeowners also enjoy tax benefits as, in most cases, the annual interest paid on a mortgage and property taxes are fully deductible. Due to the long-term fixed-rate feature of most mortgages and the lifetime cap placed on adjustable-rate mortgages, homeowners are insulated from some of the inflationary pressures on the cost of housing faced by renters.

For the past thirty years, the wealth gap between the most affluent citizens and moderate wealth families in the United States has steadily widened. Households that are able to convert their greatest monthly living expense – rent—into a tax protected asset through amortizing long-term debt have a powerful tool for accumulating wealth. The family that owned its own home in 2010 had a median net worth of $174,500, compared to families who rented and had a net worth of $5,100. Belsky’s paper provides a more detailed analysis of the financial benefits of homeownership.

The benefits of homeownership extend beyond the financial ones, though. Children who grow up in owned homes have higher academic achievement scores in both reading and math and have a25% higher high school graduation rate than children whose parents rent. Children of homeowners are twice as likely to acquire some post-secondary education, and they are 116% more likely to graduate college. As adults, they earn more and are 59% more likely to own their own home, extending the benefits of homeownership on to the next generation.

Society as a whole also benefits from homeownership. Research has shown that homeowners are more likely to be satisfied with their neighborhoods, and thus more likely to give back to their communities. People who own their homes more often participate in civic activities and work to improve the local community, and they are 15% more likely to vote. Lastly, they tend to have greater longevity in a residence, leading to a more stable neighborhood.

Considering the benefits homeownership offers to society as a whole, young Americans aren’t the only demographic group affected by recent policies. Recent reports estimate that the African-American community, with wealth more concentrated in homeownership than any other asset, lost more than 50% of its net worth during the housing crisis. The deterioration in homeownership has been disproportionately severe on African-Americans, Hispanics, and younger people, leading to a widening of the gap in minority/white homeownership rates.

Recent government efforts to protect borrowers who fail to pay their loans, particularly settlements that have been extracted from the industry and increased servicing standards, have had the effect of compounding the losses from bad loans, thereby encouraging even more conservative lending and hurting a much larger group of potential borrowers by depriving them of the opportunity to achieve homeownership. The overarching policy goal should be to facilitate homeownership, not to shift the burden of non-performance from defaulters to aspiring borrowers. Policies need to change if we wish to continue making homeownership a reality for the broadest group of eligible borrowers in the United States.  My recent paper, The Great Recession’s Most Unfortunate Victim: Homeownership, discusses how we can address this important issue.

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CR: New Home Sales at 454,000 SAAR in April

New Home Sales at 454,000 SAAR in April

by Bill McBride on 5/23/2013  

The Census Bureau reports New Home Sales in April were at a seasonally adjusted annual rate (SAAR) of 454 thousand. This was up from 444 thousand SAAR in March (March sales were revised up from 417 thousand).

January sales were revised up from 445 thousand to 458 thousand, and February sales were revised up from 411 thousand to 429 thousand. Very strong upward revisions.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

“Sales of new single-family houses in April 2013 were at a seasonally adjusted annual rate of 454,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 2.3 percent above the revised March rate of 444,000 and is 29.0 percent above the April 2012 estimate of 352,000.”

New Home SalesClick on graph for larger image in graph gallery.

The second graph shows New Home Months of Supply.

The months of supply was unchanged in April at 4.1 months.

The all time record was 12.1 months of supply in January 2009.

New Home Sales, Months of Supply This is now in the normal range (less than 6 months supply is normal).

“The seasonally adjusted estimate of new houses for sale at the end of April was 156,000. This represents a supply of 4.1 months at the current sales rate.”

On inventory, according to the Census Bureau:

“A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted.”

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

New Home Sales, InventoryThis graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is at a record low. The combined total of completed and under construction is also just above the record low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In April 2013 (red column), 45 thousand new homes were sold (NSA). Last year 34 thousand homes were sold in April. The high for April was 116 thousand in 2005, and the low for April was 30 thousand in 2011.

New Home Sales, NSA

This was well above expectations of 425,000 sales in April, and a solid report, especially with all the upward revision to previous months.  I’ll have more soon …

Read more at http://www.calculatedriskblog.com/2013/05/new-home-sales-at-454000-saar-in-april.html#FsoeEkjKiPHxQ7ds.99

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