WASHINGTON – The U.S. home ownership rate, which soared to a record high 69.2 percent in 2004, is back where it was two decades ago, before the housing bubble inflated, burst and took more than 7 million Americans from their homes.
With ownership at 65 percent and home values rising, housing industry and consumer groups are pressing lawmakers to make the American Dream more inclusive by ensuring that new mortgage standards designed to prevent another crash are flexible enough that more families can benefit from the recovery.
Regulators are close to proposing a softened version of a rule requiring banks to keep a stake in risky mortgages they securitize, according to five people familiar with the discussions.
Lawmakers currently shaping housing finance are seeking to reduce the government’s role in keeping rates affordable for riskier borrowers while ensuring that home ownership is within reach of minorities and first-time buyers who could be needed to sustain the housing recovery as borrowing costs rise from record lows.
Who will be able to buy property depends on that balance, according to Anthony Sanders, a professor of real estate finance at suburban George Mason University.
Low-down-payment loans coupled with exotic adjustable-rate mortgages helped fuel a massive housing bubble, which ultimately burst and took down the financial sector, said Sanders, who was the former head of mortgage-bond research at Deutsche Bank AG. So the question now is, do we want to do this again?
The home ownership rate in the second quarter was unchanged from the prior three-month period, according to Census Bureau data released last week. It’s currently the lowest in almost 18 years after averaging about 64 percent for 30 years through 1995.
First-time buyers and minorities are among the groups that have seen the sharpest declines since the crash. While property ownership among senior citizens was little changed at about 81 percent, the share below age 35 that own a home fell to about 37 percent from almost 42 percent five years earlier.
In the midst of a new economic push, President Barack Obama, who spent much of his first term managing the foreclosure fallout, is now turning to buying homes.
The key now is to encourage home ownership that isn’t based on bubbles but is instead based on a solid foundation where buyers and lenders play by the same set of rules, rules that are clear, transparent and fair, Obama said in a July 24 speech.
Presidents have been promoting home ownership at least since the Federal Housing Administration was created by Franklin Delano Roosevelt in 1934 to insure mortgages so more borrowers could qualify. Over more than 50 years, administrations touted property buying as a way to put lower-income families on a path to social and financial stability by forcing savings and making for a more involved citizenry.
Successive Clinton and Bush administrations unleashed ambitious programs to widen buying. Clinton’s National Homeownership Strategy in 1995 set a goal of allowing millions of families to own homes, in part, by making financing more available, affordable and flexible.
President Bush credited his policies with home ownership reaching an all-time high after he set a goal in 2002 of allowing 5.5 million poor and moderate-income and minority families to buy homes so that everybody who wants to own a home has got a shot at doing so.
At the center of these efforts were Fannie Mae and Freddie Mac, which financed mortgages for low- and moderate-income borrowers according to goals set by the federal government that steadily increased until 2008.
As Wall Street helped create subprime and riskier mortgages for borrowers with low credit scores and zero down payments, Fannie Mae and Freddie Mac bought more of the loans to meet those targets. After house prices peaked in 2006 and then fell as much as 35 percent, defaults surged and the companies required a $187.5 billion bailout from taxpayers.
Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA, said the crisis was brought on in part by the belief that home ownership could drive the economy and give the middle class access to a relatively safe leveraged investment, combined with the housing industry’s thirst for profits.
The rhetoric going into the mid-2000s was that on a national basis, and subsequent to the Great Depression, housing prices only moved in one direction, and that was up, Gabriel said.
If you study the housing policies of the Obama administration, there’s an effort to push the needle back to some balance with rental assistance. There are reasons for that, including the massive home ownership failure he was dealing with.
As the economy heals, first-time buyers and second-chance borrowers with damaged credit want a crack at property.
While affordability is near a record, they’re facing rising borrowing costs as the Federal Reserve weighs reducing its stimulus efforts, and a housing market drained of low-cost listings by private-equity firms building an industry of single-family houses for rent.
The median home price rose 13.5 percent in June from a year earlier as a third of properties were bought with cash, according to the National Association of Realtors. The share of first-time buyers, which historically averaged about 40 percent, has fallen to 29 percent, according to the Realtors’ group.
Buyers in their 20s and early 30s are often at a disadvantage because they have thin credit files and limited assets for down payments, said Sarah Rosen Wartell, president of the Urban Institute, a Washington-based nonprofit organization that studies social and economic issues.
I’m not suggesting indiscriminate access to home ownership, but there are many borrowers who are capable of demonstrating the capacity to pay, Wartell said.
Those who are able to benefit from the low rates and prices are the investors and those families who weathered the recession most successfully. And those who had a job loss or foreclosure, in many cases through no fault of their own, have the double whammy of being shut out of a rising market.