Finally some good news for homeowners – but it's in jeopardy
An improving economy is making homeownership available to more Americans. But black and Latino households remain far behind, and policy changes could threaten the gains.
Some progress is happening in one of the most crucial parts of the US economy: In the long-challenged housing market, the rate of homeownership may finally be turning a corner after a long period of decline or stagnation after the Great Recession.
Increasingly, newly formed households are becoming buyers rather than renters, and the overall rate of ownership rose to 63.7 percent of all US households in the latest quarterly report by the US Census Bureau, released July 27. That’s a recovery from 62.9 percent a year before – perhaps a “hit bottom” moment for the ownership rate.
An upturn would be significant because homeownership has long been one of the most promising paths for families to build some wealth over time. But the latest progress isn't an all-clear sign in the housing market. In fact, a decade after a devastating real estate crash rolled across America, housing is still a trouble spot right at the heart of the US economy.
What’s been roiling isn’t a price collapse or foreclosure wave, but a slow and persistent squeeze. Millions of working households feel caught between high rents and rising prices as many metro areas have a thin supply of available homes.
And the housing market, which tends to play a central role in both family budgets and the economy’s ups and downs, now also faces the prospect of significant changes in federal policy. The potential shifts include budget cuts to housing programs, rising interest rates, and loosening of Obama-era regulations that were aimed at fairness and stability in banking.
Americans like Kimberly Ramirez don’t have much choice – they’re navigating the difficult market as best they can.
“How do you save when you’re paying for rent?” asks the young Chicago resident. “Like many Millennials, I have student debt that I’m dealing with.”
Ms. Ramirez’s story, though, symbolizes that progress is possible even amid the challenges. She bought her first house this past June. “My family has always rented. Not only am I a first-time homeowner, I’m also a first-generation homeowner,” says Ramirez, whose parents emigrated from Central America.
She did it by finding little ways to save (bagging lunches rather than visiting restaurants near the health clinic where she works), but, more importantly, with help from local organizations and a home-buying market that is becoming more open, in the form of some easing of tight lending standards and a rise in inventory meant to let more buyers in.
“Overall I’d say I’m optimistic,” says David Kottmann, who manages a lending division of Neighborhood Housing Services of Chicago, the nonprofit group that helped Ramirez make her homeownership dream a reality.
Housing assistance, threatened
Three years ago, Ramirez began thinking seriously about how to become a homeowner rather than a renter. To learn the complexities of credit scores and how to bid on a home, she attended NHS Chicago workshops. When she and her partner were finally ready to buy, that same group arranged a loan with down-payment assistance.
Mr. Kottman at NHS sees an improving economy helping more potential buyers get prequalified for loans. And between nonprofits, commercial banks, and the Federal Housing Administration (FHA) he says attractive lending deals are available.
At the same time, however, certain policy changes in Washington could threaten those efforts at widened access. The National Low Income Housing Coalition estimates that already, “because of chronic underfunding of rental housing assistance programs, just one in four of the poorest people in America get the housing assistance they need.”
Yet the Trump administration’s proposed budget seeks a 13 percent cut to the Department of Housing and Urban Development (HUD), further limiting help to low-income households.
Republicans also have efforts under way to roll back or repeal big chunks of the 2010 Dodd-Frank law that was designed to safeguard the financial system – and to shield people from predatory or risky home loans – in the wake of the Great Recession. Of particular concern to critics: The Financial CHOICE Act, already passed by the House, seeks to curb the powers of the Consumer Financial Protection Bureau. Where supporters of the new measure say it will restrain needless extra layers of oversight, supporters say the CFPB has already proven its worth by winning victories against unfair lending practices.
Also facing uncertainty is the Low Income Housing Tax Credit, up for review as Congress considers an overhaul of the US tax code. Bipartisan support makes it unlikely that this incentive to build affordable housing will disappear, but legislation could make it stronger or weaker.
The changes loom as experts say a critical challenge is helping more people like Ramirez – non-whites, Millennials, people of modest incomes, first-time buyers – achieve homeownership. Ramirez says she sees the difficulties for these groups, especially for people of color, all around her.
Research bears that out. For example, a recent report by Harvard University's Joint Center for Housing Studies notes that the homeownership rate for whites is 72 percent. For Hispanic-Americans, it is just 46 percent, and for African-Americans it is 42 percent.
The numbers illustrate how housing has long been one of the main drivers of inequality. African-Americans have continued to be disadvantaged, despite the fact that overtly racist real estate practices having been outlawed for decades.They were hit particularly hard by the housing bust that began in 2007, and have struggled to recover since then. The black-white gap in homeownership currently is at its widest since World War II, according to the Harvard center’s data. Rolling back programs and regulations meant to help underserved groups could serve to widen it even further.
‘No such thing as building more land’
Adding to the wider affordability problem is what many say is a shortage of new housing units, especially moderate-priced ones. The climate for builders has been cautious since the recession, which has helped slow the development of affordable units. Additionally, in many areas zoning rules have made it difficult to find new places to build.
“Yes there is a shortage. There needs to be more homes, affordable homes in particular,” says Jennifer Hines Arrington, who helps lead lending done by the Housing Opportunity Commission in Montgomery County, Md. The nonprofit agency assists first-time homebuyers and others. “They're not building any more land. We've got to figure out a way to house folks.”
Yet amid the uncertainty over policy, many people on front lines of the housing market also see some reasons for hope.
Ms. Hines Arrington says that in Montgomery County, Maryland, developers generally must devote 12.5 percent of new units to affordable housing. “That does help us.”
In the San Diego area, another hot housing market, “there are definitely more buyers than sellers,” says Melinda Opperman, executive vice president of Credit.org, another nonprofit that provides workshops and education about loans to first-time buyers.
But she notes that the supply of homes is not so tight in other markets – a bit further from the coast – that Credit.org serves in Southern California. And in Los Angeles, the city council recently moved to offer down-payment assistance to households near the area’s median income. [Editor's note: The previous two paragraphs have been updated to correct Credit.org's name and clarify its mission.]
And at the national level, a July move by Fannie Mae and Freddie Mac opened the door to more people getting loans: The mortgage giant adjusted its automated green light for debt-to-income levels up to 50 percent, up from 45 percent before, notes Sheryl Pardo at the Urban Institute's center on housing finance policy.
Ramirez and her fellow home shoppers are a reminder that, even with ownership rates on the rise, it's still out of reach of many Americans. Buying a home isn't like paying for groceries or utility bills, after all.
“Most people would love to own a home,” Ramirez says. But “it takes a lot of self-discipline.... It also takes a lot guidance.”