First-Time Homebuyers Challenges and Opportunities. Ellen Seidman Senior Fellow, Urban Institute Assets Learning Conference September 30, 2016

Transcription

1 First-Time Homebuyers Challenges and Opportunities Ellen Seidman Senior Fellow, Urban Institute Assets Learning Conference September 30, 2016

2 Housing demand will increase, largely driven by minorities 2

3 More than 8 Million Potential New Homeowners by 2030, Although Rental Demand Will Outpace Homeownership Demand Source: U.S. Census , Urban Institute projections (p). 3

4 Without Policy Changes, Homeownership Rates Will Decline, Especially for Minorities and Prime Buying Age Households Homeownership rate by race/ethnicity f 2030f White Black Hispanic Other Total Homeownership rate by householder age f 2030f Total Source: Headship and Homeownership: What Does the Future Hold? by Laurie Goodman, Rolf Pendall, and Jun Zhu. June Urban Institute. 4

5 San Francisco-Redwood City-South San Francisco CA San Jose-Sunnyvale-Santa Clara CA Los Angeles-Long Beach-Glendale CA Miami-Miami Beach-Kendall FL Portland-Vancouver-Hillsboro OR-WA Dallas-Plano-Irving TX Philadelphia PA Washington-Arlington-Alexandria DC-VA-MD-WV Riverside-San Bernardino-Ontario CA Seattle-Bellevue-Everett WA Phoenix-Mesa-Scottsdale AZ Oakland-Hayward-Berkeley CA San Diego-Carlsbad CA Denver-Aurora-Lakewood CO Orlando-Kissimmee-Sanford FL Boston MA Sacramento--Roseville--Arden-Arcade CA Fort Worth-Arlington TX Charlotte-Concord-Gastonia NC-SC San Antonio-New Braunfels TX Tampa-St. Petersburg-Clearwater FL Atlanta-Sandy Springs-Roswell GA New York-Jersey City-White Plains NY-NJ Las Vegas-Henderson-Paradise NV Houston-The Woodlands-Sugar Land TX Baltimore-Columbia-Towson MD Kansas City MO-KS Minneapolis-St. Paul-Bloomington MN-WI Detroit-Dearborn-Livonia MI Chicago-Naperville-Arlington Heights IL St. Louis MO-IL Nassau County-Suffolk County NY Columbus OH Cincinnati OH-KY-IN Pittsburgh PA Newark NJ-PA Cleveland-Elyria OH Homeownership Still Affordable in Many Areas Affordability Adjusted for MSA-Level DTI Ratio Sources: CoreLogic, US Census, Freddie Mac and Urban Institute calculations based on NAR methodology. Note: Index is calculated relative to home prices in A ratio above 1 indicates higher affordability in May 2016 than in

6 But Credit is Still Very Tight Housing Credit Availability Index (HCAI) HFPC s Housing Credit Availability Index (HCAI) assesses lenders tolerance for both borrower risk and product risk, calculating the percentage of owner-occupied purchase loans that are likely to default. The index shows that credit availability declined slightly to 5.4 percent in 2016 Q1, down from 5.6 percent in the previous quarter. The measure is less than half of the standard of 12.5 percent. More information about HCAI, including the breakdown by market segment, is available here. 18% 16% 14% 12% Product risk 10% 8% 6% 4% Borrower risk 2% 0%

7 More First-Time Homebuyers Are Getting Loans First-Time Homebuyer Share In May 2016, the first-time homebuyer share of GSE purchase loans edged down to 44.6 percent. The FHA has always been more focused on first-time homebuyers, with its first-time homebuyer share hovering around 80 percent and now rose to 83.3 percent. The bottom table shows that based on mortgages originated in May 2016, the average first-time homebuyer was more likely than an average repeat buyer to take out a smaller loan and have a lower credit score and higher LTV and DTI, thus requiring a higher interest rate. GSEs FHA GSEs and FHA 90% 80% 83.3% 70% 60% 58.6% 50% 40% 44.6% 30% 20% Sources: embs, Federal Housing Administration (FHA ) and Urban Institute. Note: All series measure the first-time homebuyer share of purchase loans for principal residences. 7

8 FHA Is Critical for First-Time Homebuyers Comparison of First-Time and Repeat Homebuyers, GSE and FHA Originations GSEs FHA GSEs and FHA Characteristics First-time Repeat First-time Repeat First-time Repeat Loan Amount ($) 225, , , , , ,837 Credit Score LTV (%) DTI (%) Loan Rate (%) Sources: embs and Urban Institute. Note: Based on owner-occupied purchase mortgages originated in May

9 Pros and Cons of Homeownership Opportunitie s Concern s 1. Homeownership is a source of family stability; even foreclosures take longer than evictions, and many safeguards are in place to limit foreclosures 2. Ownership provides greater monthly payment stability. There is no threat of sudden rent increases 3. Buying a home requires saving for a down payment, which encourages saving behavior 1. Homeownership in high-opportunity communities is expensive, making relocation difficult 2. ARMs reduce mortgage payment stability, property taxes and insurance costs can increase unexpectedly, and maintenance and repairs create unexpected expenses 3. Saving for a down payment while paying rent is difficult-- in most years, renters would have earned more if the down payment was invested otherwise 4. Ownership enhances access to larger units and better school systems 5. Ownership creates wealth building opportunities through monthly mortgage payments, additional opportunity if home prices rise 6. Owning provides tax benefits through deductions for mortgage interest and property taxes, while excluding most capital gains taxes 4. School choice may make access to better schools less dependent on where you live; owning may make relocating to better job opportunities more difficult 5. Long-term mortgages build equity slowly at first; in a downturn, equity can be lost if the mortgage goes underwater 6. Tax deductions are less valuable for those in lower tax brackets than for higher income households 9

10 Making Homeownership Work on a Volatile Income Saving for a home Individual Development Accounts Family Self-Sufficiency Program Lender-sponsored savings plans Getting a mortgage with volatile income Sustaining the mortgage Adding savings to escrow Self-generated bi-weekly mortgage payments Stewardship-based tenures 10

11 For more information, please contact: Ellen Seidman, Urban Institute