Homeownership is down and it needs to increaseby Peter Miller
That’s not a surprise.
What’s a surprise is one alleged reason for our falling homeownership rate. According to a new study from the Mortgage Bankers Association, “Sharp declines in house prices served as a catalyst for the 2007 meltdown in mortgage and capital markets and the downturn in the global economy.”
This reasoning confuses cause and effect. Falling home prices were the result of the erosion of mortgage norms, NOT the cause of a mortgage meltdown.
The causes of the mortgage meltdown
Don’t believe me? Let’s go to the tape….
“High risk mortgage lending and shortcomings in consumer protections for mortgage borrowers were among the most important underlying causes of the housing bubble and the financial crisis that resulted,” said former FDIC chair Sheila Bair.
“Not only did the proliferation of high-risk subprime and nontraditional mortgage products help to push home prices up during the boom, but excessive reliance on foreclosure as a remedy to default has helped to push home prices down since the peak of the market over four years ago.”
Homeownership levels need to remain high
In 2000, U.S. homeownership rates stood at roughly 67 percent, the highest level recorded to that point in time. That rate jumped to a new all-time high of 69.2 percent in the fourth quarter of 2004 and remained at roughly that level through the middle of 2006. With the onset of the 2007 financial crisis, homeownership rates have dropped, falling to 66.4 percent in the first quarter of 2011.
As ownership levels decrease, the number of vacant homes increase, making it more difficult to construct new homes and benefit from the jobs, local taxes and spending which new homes create and which our economy desperately needs.
Moreover, vacancies can create real problems if the properties are not correctly managed or repurposed into rental housing.
An excess of homes holds down prices. For this reason it’s difficult for a current homeowner to sell a property and move-up. That means the owner of the more expensive property is also less able to sell.
Mortgage rates are also impacted by the problem of surplus homes. Today’s mortgage rates are surely lower because there is less competition for financing. That’s good news if you need a loan, not good if you want to restore the economy.
More owners seems unlikely at the moment
Can we again increase homeownership?
In the short term–the next few years–this seems very unlikely. We have a huge number of foreclosed properties which are owned by lenders, properties which need to be re-sold and placed back into the inventory of occupied homes. The problem here is that the ownership of these properties–and the grounds for their foreclosure–are no longer so clear as a result of the robo-signing scandal.
Also, those who have lost their homes to foreclosure are not likely to qualify for a new mortgage for several years to come (in most cases). In particular, those who have “walked away” from a mortgage are unlikely to get new financing for many, many years.
Lastly, high rates of unemployment mean large numbers of potential buyers are unable to qualify for financing. No matter how much someone wants a house, no matter how low today’s mortgage rates might be, it doesn’t matter if household income is insufficient.