WASHINGTON – May 22, 2013 – The shape of housing markets has changed dramatically over time, and it will change again in the face of new housing opportunities and challenges, according to panelists at the “Challenges and Opportunities in Housing and Homeownership” session Friday at the National Association of Realtors® (NAR) 2013 Midyear Legislative Meetings & Trade Expo.
“The residential mobility rate (a measure of American moving) in the U.S. has been falling steadily since the 1990s, when it was approximately 20 percent, to its current level of 12 percent,” said NAR Chief Economist Lawrence Yun. “The decline is unwelcome news since it may imply a reduction in economic mobility.
According to Yun, “Mobility is currently being impacted by the lack of housing inventory since fewer homes are available. In the future, proposed regulations requiring larger downpayments (QRM or qualified residential mortgage rules due to be released soon) could also significantly reduce mobility since fewer homeowners may be able to afford a home.”
Lisa Sturtevant from George Mason University’s Center for Regional Analysis said recent trends in residential mobility are most likely the result of changes in the age distribution of the population. The two largest segments of the population – baby boomers and millennials – are delaying many major lifecycle events that have been traditional for their respective life stages, like marriage, children and retirement. That also means they’re not moving as much as members of previous generations at the same life stages.
“Homeownership rates have declined fastest for millennials, most likely the result of fewer job opportunities and higher student debt; however, I believe they still want to become owners and will eventually make their way into the housing market,” Sturtevant said. “When they do enter the market, they’ll care about different things than previous generations too. I foresee more single people buying smaller homes in urban areas.”
Yun agreed that the recent housing downturn hasn’t changed younger buyers’ attitudes about homeownership, despite many of them delaying their entrance into the market. “Rather, reduced home prices and lower interest rates have provided an opportunity for younger buyers to affordably enter the housing market,” he said.
“Higher home prices will unlock a large number of households with negative or low equity and incentivize them to get off the sidelines and into the housing market,” added James D. Shilling from DePaul University’s Institute for Housing Studies. “However, combined with future increases in interest rates, the net effect is likely an overall reduction in residential real estate transactions and household mobility.”
He anticipates the Federal Reserve will keep mortgage rates low through 2013 and most likely into 2014. As a result, most current homeowners will have mortgages with loan rates near record lows. But that also means they’ll think twice about selling a home with a low mortgage to buy a new home when it also comes with a higher rate mortgage.
Lucy Gorham from the Center for Community Capital at the University of North Carolina said that new mortgage regulations proposed by the federal government could also impact the future housing market if they include higher downpayments. While restrictive underwriting helps lower defaults, it keeps more creditworthy borrowers from buying a home. If 20 percent downpayments are required, for example, up to 60 percent of current buyers could fall outside the qualified mortgage criteria and potentially face higher interest rates or fees.
“Despite the recent housing crisis, homeownership continues to help build wealth for lower to middle-income households,” said Gorman “A safe mortgage product with good underwriting helps lower loan defaults; requiring greater down payments simply closes off access to a greater percentage of borrowers.”
Gorham said higher downpayments would also disproportionately impact minorities. Minority families tend to have lower wealth and a greater need for access to mainstream sustainable loan products.
Margaret McFarland, Colvin Institute of Real Estate Development at the University of Maryland agreed that requiring higher downpayments and credit scores excludes many well performing loans from the market.
“Federal Housing Administration loans are an important financing option for affordable homeownership,” she said. “Veterans Affairs home loans also perform very well in relation to other mortgage products, even with a zero downpayment.”
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