Homeownership rates are at the lowest levels since 1967. The reasons for the steep decline since 2007 are not in doubt. But one has to begin to wonder if the baby has been thrown out with the bathwater when it comes to the overly restrictive rules on mortgages that have just become even more restrictive.
Starting with the slide. The zealous effort by the Clinton and Bush administrations to make the American dream more available to the citizenry could be seen as laudable. The resulting greed of banks, investors, regulators, and yes, consumers, resulted in the bubble and subsequent crash. Marginal homeowners went back to renting, but clearly some who could be owners have not been able to get back into a home of their own.CNBC reports:
The U.S. homeownership rate fell to 63.4 percent in the second quarter of 2015, according to the U.S. Census. That is down from 63.7 percent in the first quarter and from 64.7 percent in the same quarter of 2014. It marks the lowest homeownership rate since 1967.
Homeownership peaked at 69.2 percent at the end of 2004, when the housing market was in the midst of an epic boom. The 50-year average is 65.3 percent.
The Obama administration put the skids on questionable loan practices with the Dodd Frank legislation. Again, one could say this was well meaning, but as with so many pieces of well meaning legislation, this bill has almost singlehandedly kept the economic recovery at bay for six years, and driven rents through the roof. If 2% more families were homeowners instead of renters, the impact on housing starts and rental rates would have a massive effect on the anemic recovery.
In a report out today by Deutsche Bank and reported by Business Insider:
“Mortgage standards tightened modestly in 1H15 … off what we would consider already tight levels,” the note said.
“And we expect additional tightening following recent guidelines from the Federal Housing Administration.”
“We continue to believe that consumer lending standards remain tight overall—particularly in mortgage (67% of all consumer debt). We believe this has been (and will remain) a drag on economic growth in the US and contribute to lower for longer interest rates,” analysts wrote.
Fannie Mae and Freddie Mac have been contributing to the overall tightness in lending with threats to lenders over minor errors in selling loans to the two agencies. The concern by lenders is that these minor errors may mean the lender is forced to take the loans back into their own portfolios. Now Fanny and Freddy are trying to clarify the rules in order to get lenders to loosen up:
On Wednesday, Fannie and Freddie said that rather than require lenders to buy back loans with insignificant defects, it would require them to pay Fannie or Freddie what would have been paid to the companies had the details been accurate.
“Lenders consistently tell us that concerns about repurchases limit their willingness to lend, so we’re trying to put those concerns to rest,” said Fannie Mae Executive Vice President Andrew Bon Salle in a statement.
There are signs the efforts are working. A Fannie Mae survey released last month said 23% of lenders believed credit standards on Fannie- and Freddie-eligible loans had eased over the past three months, versus 12% a year earlier.
One could speculate that the issue of homeownership and mortgages is the new third rail of politics. The Republicans are afraid to talk about it, because they don’t want to be tied to the financial crisis of 2007-8. The Democrats don’t want to talk about easing standards, as their narrative is that the tightened standards saved the economy. Somebody should really take a risk, or we are likely to see more stories like this one:
Rental rates could rise by an average of 8% through next year, according to more than two-thirds of property managers surveyed in a report issued by Rent.com.
Out of the 500 property managers surveyed in the rental site’s Property Owner and Manager Market Report—and between them, they are said to represent hundreds of thousands of rental units—88% of them have raised their rates in the last 12 months, and they seem committed to hiking rates again next year.
The reasons are manifold, but 64% of landlords surveyed identified two main factors: the twin pressures of increased demand for units and low inventory. As noted by the U.S. Census Bureau for the second quarter of this year, national vacancy rates dropped to a 20-year low of 6.8%. With the country currently in the midst of its strongest stretch of rental growth since the late 1980s, and with homeownership rates falling at historic levels, landlords have little incentive to lower their prices.
At any point in time that you are ready to buy real estate for your family residence or vacation property or as an investment vehicle, and you need a mortgage, call Bill Rayman for an in depth review of your needs and the best possible mortgage product for your specific circumstance. Phone: (424) 354-5325
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Los Angeles, CA 90025