As the housing market recovers from its worst downturn since the Great Depression, the time is right to re-assess the role of homeownership in American society. How did we go off-track? What must we do better? What are the crucial elements of sustainable homeownership?
Although some have called into question the value of homeownership, we continue to believe that owning a home — when responsibly undertaken — can produce powerful economic, social and civic benefits.
Research shows that homeownership can lead to stronger neighborhoods, increased civic engagement, and improved educational achievement for children.
For many families, purchasing a home has also been their single biggest opportunity to build household wealth. Through the “forced savings” of a monthly mortgage payment, millions of families have been able to build equity in their homes. That equity has helped pay for college, meet retirement needs and serves as an inheritance well.
Notwithstanding a precipitous drop in home prices, homeownership continues as the preferred housing choice of a majority of Americans.
RATE OF HOMEOWNERSHIP
According to the Urban Institute, the overall national homeownership rate is unlikely to fall below 60% at any time before 2030. While the national rate stands at 65% today, more than four points off its record high of 69.2% in 2004, nearly two-thirds of American households still own their own homes.
The recent housing and economic crisis had a disproportionate impact on minority households and homeowners. However, the vast majority of African-American and Hispanic families continue to aspire to own a home of their own.
In the coming years, the growing Hispanic population, estimated to approach 29% of the overall population by 2050, will fuel demand in the home purchase market. In fact, this demand is already having an impact: One study estimates that in 2012 Hispanics accounted for 51% of the total net increase in homeowner households in the United States. As the educational and income levels of Hispanic households rise, so too will their desire to purchase homes of their own.
OBLIGATIONS
Key to this strategy is the straightforward notion that mortgage borrowers must understand their obligations and be well positioned to fulfill them. And lenders must underwrite loans based on the borrower’s ability to repay. At the height of the housing bubble, too many participants on both sides of the mortgage transaction forgot this simple principle.
A second element of this equation must be simplicity. In a study of 46,000 low-income homeowners, researchers at the University of North Carolina found that mortgages performed well when well serviced and structured in a way that avoided risky features, e.g., no documentation of income or assets, high upfront fees, prepayment penalties, teaser rates and balloon payments.
The lesson here is that solidly underwritten, fixed-rate mortgages — when coupled with reasonable downpayments — can responsibly open the door to homeownership for families with limited wealth.
The third element is housing counseling and education, particularly for first-time homebuyers. The evidence is strong that counseling can help families successfully navigate a financial crisis and assist them in deciding whether they are prepared for the obligations of homeownership.
Of course, no strategy for sustainable homeownership will work unless our nation has a strong, vibrant housing market that provides options for households at all stages in life. The U.S. needs a federal housing policy that recognizes owner-occupied and rental housing are complementary — not competing — components of the same system.
STATE OF THE INCOME
According to the most recent State of the Nation’s Housing report produced by Harvard University’s Joint Center for Housing Studies, the number of extremely low income renters rose by 2.5 million households from 2007-2011.
Federal support should strike an appropriate balance between homeownership and rental housing.
This should include support for additional affordable rental housing for low-income families and a strategy for sustainable homeownership that serves families of modest means.
The elements of this strategy are outlined in Housing America’s Future: New Directions for National Policy, a report released earlier this year by the Bipartisan Policy Center’s Housing Commission.
As housing and the economy begin to mend and the nation’s demographics continue to change, it is important we learn from our past mistakes and remain committed to the aspiration first expressed in the Housing Act of 1949 — a decent home and a suitable living environment for every American family.
