RealEstateEconomyWatch.com

In the era of relaxed underwriting our nation’s homeownership rate climbed to 69.2 percent at the peak in 2004. Today, a sharp downturn and tight underwriting conditions have exerted downward pressure on the homeownership rate which is currently hovering around 68 percent and falling. A reasonable question is: what should the nation’s homeownership rate be?

With few exceptions, the homeownership rate has trended upward since 1940, climbing from 43.6 percent in 1940 to 61.9 percent in 1960 to 69.2 percent in 2004. And now the rate is beginning to fall. Other nations’ homeownership rates vary widely from a 34.6 percent homeownership
rate in Switzerland to an 85.3 percent homeownership rate in Spain. So there is no “right” homeownership rate.

Staying at home, homeownership rates vary widely by race and ethnic group. Whites had the highest homeownership rate at 75 percent, while both Hispanics and African Americans had rates under 50 percent-48.9 percent and 47.1 percent, respectively. Certainly the large discrepancy between Whites and minority groups is not acceptable under any circumstances. But the government response to narrow the disparity in homeownership rates among Whites and minority groups-Community Reinvestment Act and the Home Mortgage Disclosure Act-is what largely resulted in lax mortgage underwriting during the late 1990s and homeownership rates into this decade. Banks as well as Fannie Mae and Freddie Mac were under pressure to provide a steady source of home funding to minority households in an effort to raise minority and low-income household homeownership rates. To meet their “minority lending targets,” lenders and Fannie and Freddie created and offered low down payment mortgage loans that soon transitioned into low documentation loans. At the same time, a market
for subprime and Alt A mortgage loans surfaced. And as they say, the rest is history.

The biggest losers today are minority and low-income households; they have been left behind in today’s tight underwriting marketplace. Other than FHA-insured loans, borrowers need a 20 percent down payment to obtain a mortgage to purchase a home. Down payment assistance loans are no longer available as well. The good news is that households, who are not financially ready to purchase a home, will not purchase a home. The bad news is that there are households, who have a steady income and could purchase a home, that will be denied the opportunity because of overly tight credit conditions.

Our nation’s homeownership rate will almost assuredly decline during this next decade due to the lack of mortgage products designed to put minority and low-income households into homes. Hopefully, at some point, we will be able to create responsible mortgage products that will provide financially worthy minority and low-income households the opportunity of homeownership.