June is National Homeownership Month, a time to celebrate the benefits that homeownership brings to families, neighborhoods, and communities across America. It’s also an opportune time for you to educate prospective borrowers on the value of homeownership. In this 4-part series, we’ll discuss the housing market, the benefits of homeownership, the challenges first-time homebuyers face, and how different mortgage structures can help your borrowers.
What is National Homeownership Month?
National Homeownership Month has gone through many iterations to get to where it is today:
1920’s: The concept for celebrating homeownership begins as a week-long celebration thanks to local real estate associations wanting to promote the idea of homeownership
1956: The National Association of REALTORS® picks up the concept and celebrates it officially
1976: The week is officially renamed Private Property Week
1986: Renamed again to American Home Week
1990s: The Clinton Administration makes a big push for homeownership through various initiatives
2002: President George W. Bush proclaims June as National Homeownership Month as the celebration is absorbed into an initiative created by the Department of Housing and Urban Development (HUD)
Homeownership in the U.S.
There’s been a noticeable shift from renting to homeownership, especially among younger buyers. Although we believe this trend began in 2015, it started showing up in the official homeownership data in 2017 and continues to this day. In Q1 of 2018, homeownership rates increased by 0.6 percentage points from a year ago to 64.2%. While homeownership rates can be affected by many economic, demographic, and cultural factors, they are much lower today than they have been historically.
If you take a zoomed-out look at the numbers, homeownership rates have been on the decline since 2004 (Figure 4). But we believe that the market has reached the trough, and the housing market is starting to recover.
Homeownership rate isn’t the only thing that’s increased year over year. According to the National Association of Realtors, the median home value in the U.S. is $257,900. Experts anticipate values will continue to rise at a fairly steep rate through the end of the year.
Today’s First-Time Homebuyers Face Challenges
While rising home values are great for homeowners who are looking to sell soon, it’s causing a problem for those looking to enter the housing market for the first time. That’s partly because while home values are rising, wages aren’t rising at the same rate. There’s also a shortage of available housing. Take a look at the numbers over the last 5 years according to NAR’s chief economist:
- Rise in home value = 38%
- Rise in wages = 12%
You don’t need to be good at math to see a problem there. First-time homebuyers are simply priced out of their affordable housing options.
Putting affordability aside, there’s also a shortage of available houses both new and existing. While the increased demand for housing has caused a new wave of construction to begin, those houses will not be readily available for many months.
Another market force to consider is the fact that older Millennials want to buy houses. While individuals in this generation tend to carry $17,000 of student debt on average, they’re eager to build equity in a home and utilize low down payment and gift options that many loan products afford them.
We’re also facing a lack of housing inventory in the U.S. which has discouraged repeat buyers from purchasing and first-time buyers from purchasing at all. According to Tian Liu’s First-Time Homebuyer Market Report, we had about 3.5 months’ supply of homes in Q1 2018 as compared to about 4.4 months’ supply two years ago.
What Can We Do?
It’s not all bad news. Rising home values are good for current homeowners and reinforce that homes are still a stable investment. Plus, there are plenty of mortgage products that can help first-time homebuyers get into a home and start building equity in a long-term investment vehicle. These options range from VA loans, HFA loans, FHA loans, and conventional loans with private mortgage insurance. Four out of five first-time homebuyers will use one of these mortgage products to buy a home.
While we in the mortgage industry can’t influence larger market trends like slowly increasing wages, we can play our part by educating first-time homebuyers on their financing options. That means encouraging good savings habits, expanding knowledge of different types of loans, and showing the long-term payoff of owning a house.
There are already some programs like this in place – HomeReady™ and Home Possible® require first-time homebuyer education programs in certain situations which promote safe savings practices. There are also plenty of comparison charts online that LO’s can share with their potential borrowers to explain the differences in loans (like FHA vs a loan with PMI) and MI structures.
The more knowledge we can share with homebuyers, the more we can help get into homes. We can also ensure they’re responsible homeowners, making them a safer investment for you. As mortgage professionals, that’s the best way we can honor National Homeownership Month.