Mortgage Availability And Post-Foreclosure Stress Disorder Keep Millions Out Of Homeownership; New Study Identifies Five Major Barriers

BERKELEY, Calif., June 9, 2017 /PRNewswire/ -- The U.S. national homeownership rate dropped from a peak of 69% in 2004 to an average of 63.6% in the first quarter of 2017, remaining near 50-year lows. Despite steadily improving job markets and historically low mortgage rates, significant barriers to homeownership endure.

If the mortgage availability alone returned to a more normalized level in 2016, Rosen Consulting Group (RCG) estimates that more than 900,000 additional home purchase mortgages would have been issued, according to a new report "Hurdles to Homeownership: Understanding the Barriers" released today by Rosen Consulting Group and the Fisher Center for Real Estate & Urban Economics, Haas School of Business, University of California, Berkeley.   

"Ten years after the Great Recession, major barriers remain for households trying to buy a home. Limited mortgage availability and excessive bank regulation restricts nearly a million households from purchasing homes each year," said Ken Rosen, Chairman of Rosen Consulting Group and UC Berkeley's Fisher Center for Real Estate & Urban Economics. "Many households now suffer from post-foreclosure stress disorder, an altered perception of the financial risks associated with homeownership. Moving forward, addressing these challenges will be critical to helping millions of households attain the American Dream."

As low homeownership rates persist, particularly for minority households and younger families, a tight mortgage credit environment, the growing burden of student debt, and shifts in the perception of risks associated with buying a home, prevent millions of homebuyers from becoming homeowners. Moreover, these challenges are compounded by increasing cost of living, rising rents and a dramatic lack of new housing supply, a result of the many hurdles faced by homebuilders.

In aggregate, the major barriers mentioned below are greatly depressing homeownership rates;

Key Findings about Mortgage Availability

• The lack of available credit played a significant part in depressing the national homeownership rate, keeping many households out of the homeownership market.
• In 2016, households with credit scores of 760 or greater nearly doubled their share of total mortgage originations versus 2003 growing from 30% to 58%, while those with good to excellent credit scores between 720 and 759, dropped in half of market share from 35% to 17%. This indicates a huge shift in the credit availability for any household, outside those with terrific credit, in procuring a mortgage loan.
• RCG estimates that more than 900,000 additional home purchase mortgages would have been issued in 2016, if the lending environment returned to more normal credit conditions, like those in the early 2000s.
• Excessive bank regulations, large fines and mortgage loan putbacks in the wake of the foreclosure crisis led banks to an industry-wide pull back from mortgage lending, which we refer to as post-foreclosure lending aversion.

Key Findings about Post Foreclosure Stress Disorder

• RCG believes that the Great Recession fundamentally altered many individuals' perceptions of financial risks and generated long-lasting psychological changes in financial decision-making, particularly housing tenure choice. We refer to this phenomenon as post-foreclosure stress disorder.
• Nearly 90% of millennials and Gen X households aspire to own a home. Yet, almost one in six households aged 18 to 49 claimed renting was a good choice for now, despite being financially able to own a home.
• With such a significant percent of young households that can afford a home, choosing to rent, RCG believes that post-foreclosure stress disorder prevents many households from becoming homeowners.

Key Findings about Student Debt

• U.S. households are taking on more debt in order to pay for higher education, making it challenging to save for future goals, such as a down payment. With spiking student loan debt levels, households are forced to delay the purchase of a home.
• The average student loan payment in 2015 was $300 per month, 20% of the $1,460 mortgage payment of the median existing home price.
• Student loans increased substantially as a share of total household debt, rising by more than five percentage points since 2008 to 10.6% in 2016. And will continue to increase rapidly.

Key Findings about Single Family Housing Affordability

• Limited mortgage credit availability and lack of available inventory for sale will make it increasingly difficult for households to find a home within their budget in the coming years.
• RCG forecasts that single family housing affordability will fall by an average of nearly nine percentage points across 75 major markets between 2016 and 2019, with approximately five million fewer households able to afford a local median-priced home by 2019.
• RCG estimates that the minimum household income needed to afford an apartment surged by an average of $10,200 between 2009 and 2015, across 58 major apartment markets. In comparison, the median household income increased by an average of just $6,400 across the same major markets.

Key Findings about Single Family Housing Supply Shortages

• As demand for the housing market returned in recent years, several major hurdles are hampering the development of new housing supply. The availability of capital for homebuilders, the rising cost of construction, and the combined effect of local land-use and zoning regulations across the country are all constricting new single family housing supply nationwide.
• Compared with the long-term average, RCG estimates that the low level of single family building during the last eight years represents a cumulative deficit of nearly 3.7 million new home starts since 2008.
• Limited capital availability hampered the capacity of developers to meet rising demand for new single family homes. Construction financing in 2016 was still 63% below the peak levels reached in 2008.
• As financing dried up for single family, costs spiked. For every $100,000 a builder spent towards the construction of a home in 2010, they today spend over $130,000, further limiting production.

Policy Implications

Understanding these complex and varied barriers is key to developing policies that can start to reverse the tide of historically low homeownership rates nationwide. RCG believes that tackling hurdles to new development and the accessibility of mortgages, greater access to construction financing, and the burdens of student debt, will require a willingness to rethink the status quo and embrace new ideas that are both innovative and pragmatic. RCG will expand upon these principals in our next report.

To read the full report, please click here.

About the Study

Hurdles to Homeownership: Understanding the Barriers was prepared by Rosen Consulting Group for the National Association of REALTORS® and jointly released by Rosen Consulting Group and the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley Haas School of Business. This report, the second of three papers to be prepared by Rosen Consulting Group in 2017, examines the ongoing barriers to homeownership, focusing on the hurdles of mortgage credit, the regulatory environment, student loans, perceptions of risk and affordability, as well as the supply-side challenges of homebuilder financing, rising costs and regulatory burdens.

About Rosen Consulting Group

Rosen Consulting Group (RCG) is a leading independent real estate economics consulting firm. Founded in 1990 and with offices in Berkeley and New York, RCG provides strategic consulting and unbiased investment guidance through all market cycles. RCG is a trusted advisor to leading banks, insurance companies, institutional investors, and public and private real estate operators. For more information go to www.rosenconsulting.com.

About the Fisher Center for Real Estate & Urban Economics

The Fisher Center for Real Estate & Urban Economics (FCREUE) mission is to educate students and real estate professionals, and to support and conduct research on real estate, urban economics, and the California State economy. FCREUE strives to be the leading center for research on the California economy and excels nationally as a center for urban economic and public policy research. It also regularly provides a practical forum for academics, government officials, and business leaders. For more information, go to http://groups.haas.berkeley.edu/realestate/.

SOURCE Rosen Consulting Group

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