Challenges & Opportunities in Housing and Homeownership

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Moderator: NAR Chief Economist Lawrence Yun
Panelists:
James Shilling, PhD, Institute for Housing Studies, DePaul University
Lisa Sturtevant, PhD, Center for Regional Analysis, George Mason University
Margaret McFarland, JD, Colvin Institute of Real Estate Development University of Maryland
Lucy Gorham, PhD, Center for Community Capital, University of North Carolina

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  • Question: Is homeownership still a pathway to building assets compared with renting?Were renters able to build significant wealth by other means during the housing crisis?What about the assets of people who were no longer homeowners and transitioned to being renters?
  • What does your research show about the importance of products and underwriting for avoiding delinquency and default?Do you see very different results for similar homeowners based on the mortgage products they used?
  • Q: Given the new QM regulations issued by the Consumer Finance Protection Bureau, what does your research tell us about the potential impacts of adding more restrictive underwriting standards on top of them?
  • Q: Since more restrictive underwriting closes off access to some borrowers but also lowers the risks of default, how would you characterize the tradeoffs between risk and access?
  • Q: Down-payment requirements are one restriction often discussed in the context of QRM. What are the implications for helping low and moderate-income families achieve homeownership?
  • Qs: 1. And can you discuss the implications of down-payment requirements on communities of color?2. What would be the impact on efforts to close the racial wealth gap?3. If communities of color can’t get access to QM loans, where would they look for mortgage lending?
  • Questions:How do we balance risk and access given the current discussion around QM and QRM regulations?Do you believe that underwriting restrictions are needed beyond QM?
  • Challenges & Opportunities in Housing and Homeownership

    1. 1. Challenges & Opportunities inHousing and Homeownership
    2. 2. James Shilling, PhD, Institute for HousingStudies, DePaul UniversityLisa Sturtevant, PhD, Center for RegionalAnalysis, George Mason UniversityMargaret McFarland, JD, Colvin Instituteof Real Estate Development University ofMarylandLucy Gorham, PhD, Center for CommunityCapital, University of North CarolinaThis Morning’s Panel
    3. 3. Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?The Longer TermPatric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing MarketMobility in the Single-Family Housing MarketPatric H. Hendershott, Jin Man Lee, and James D. ShillingDePaul UniversityMay 17, 2013
    4. 4. 0.001.002.003.004.005.006.007.000.001.002.003.004.005.006.007.00January2005April2005July2005October2005January2006April2006July2006October2006January2007April2007July2007October2007January2008April2008July2008October2008January2009April2009July2009October2009January2010April2010July2010October2010January2011April2011July2011October2011January2012April2012July2012October2012January2013April2013Spread,%30-yrFRMRate,%MonthSource: Fannie Mae PMMS DataMtg Rate SprdQuantitative Easing has Resulted in Record-Low InterestRatesUnconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?The Longer TermPatric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market
    5. 5. Immediate Opportunity to Take Advantage ofUnconventional Monetary Policy EffectsUnconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?The Longer TermPatric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market3,000,0003,500,0004,000,0004,500,0005,000,0005,500,0006,000,000130132134136138140142144146148150January2010March2010May2010July2010September2010November2010January2011March2011May2011July2011September2011November2011January2012March2012May2012July2012September2012November2012ExistingHomeSalesCase/ShillerHousePriceIndexSource: McGraw Hill Financial S&P/Case-Shiller House Price IndexNational Association of Realtors Existing-Home Sales
    6. 6. Higher House Prices will Unlock Households with Low orMildly Negative EquityUnconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?The Longer TermPatric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market0%5%10%15%20%25%30%35%40%North West South North/West Far SouthHouseholdswithNegativeEquity,%Source: Institute for Housing Studies, DePaul UniversityPolicy Simulation of Increase in House Pricest+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5
    7. 7. Likely to See Mortgage Rate Lock-in Effects Similar tothose Observed in Late 1960s and Early 1970sUnconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?The Longer TermPatric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market0%10%20%30%40%50%60%North West South North/West Far SouthBorrowerswhoareLockedIntoTheirLoan,%Source: Institute for Housing Studies, DePaul UniversityPolicy Simulation of Increase in Mortgage Ratet+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5
    8. 8. Net Effect is Likely to Reduce Residential TransactionsUnconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?The Longer TermPatric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market0%1%2%3%4%5%6%7%8%9%10%North West South North/West Far SouthExisting-HomeSales/TotalHousingUnits,%Source: Institute for Housing Studies, DePaul UniversityNet Effect of House Price Increase and Interest Rate Increase on Trading Volumet+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5 t+1 t+2 t+3 t+4 t+5
    9. 9. AFFORDABLE HOUSINGIN THE USMay 17, 2013
    10. 10. I. Levels of Income that Affordable Programsserve:a. WorkForce Housing 80% - 120% AMIb. Moderate Income 60% - 80% AMIc. Low Income 50% - 60% AMId. Very Low Income 30% - 50% AMIe. Extremely Low Income 0 – 30% AMI
    11. 11. II. Financing Programs for Affordable OWNERSHIP HousingA. Income Tax Deduction (for Interest) (Federal/State)1. Everyone Qualifies2. No Income Limits on Who QualifiesB. Government Insured Construction Loans to Developers (FHA)a. Lower Risk to Lender (if loan defaults, Government picks up)b. Reduces the Cost of Construction – Lower Cost of the Housec. Required to sell to Moderate Buyers (80 – 120% AMI)
    12. 12. II. Affordable Homeownership (cont.)C. Federal Government Insured Purchase Loans for Buyers (FHA/VA)1. First Time Home Buyers Qualify2. Restrictionsi. Buyer is required to RESIDE in home (no investors)ii. Can RESELL to anyone without restrictionD. Private Bank/Government Insurance for Loans for Buyers(FHA/VA)1. Private Banks make the most loansi. Federal Government insures loan so Private Bankswill make at reduced loan requirements
    13. 13. II. AFFORDABLE OWNERSHIP MECHANISM (cont.)E. Soft Second Loans (Grants) –1. State and Local Government primarily offermay be using federal pass through funds (HOME CDBG)2. Who Qualifies:a. Income Restrictions vary depending on Local Program3. First loan from Bank – much lower amount4. Can be Done in Form of a Grant or Soft Loan5. Repayment Terms on Soft Loan (lots of variations)A) Pay back the loan when SELLi. split profit by percentage with the Localgovernment 60/40)B) Repay nothing if reside for specified number of years –i. Burn Off Loanii. Typicall 10% per year, so if live there for 10 yearsthe loan is "forgiven"iii. If sell before the 10th year, then pay backpercentage out of proceeds of sale
    14. 14. IV. Affordable Housing Mechanisms (cont.)F. Required New Construction [MDPUs]1. To Obtain Zoning/Planning/Building Permits for NewConstruction2. Imposed by Local Governments (County/City)3. Moderately Priced Dwelling Units4. Applies if building more than 50 New Homes5. Developer must build a Specified Percentages of "AffordableHomes" (typically 10 – 15%)6. May (or may not) be required to match other new homes built7. Homes Can Only be Sold to Qualifying Buyers – 80 – 120% AMI8. Homeowner Must Reside for (10/15/30 years) or "pay backportion"9. More recently, restrictions on resale
    15. 15. II. Affordable Ownership Mechanisms (Cont.)G. Sweat Equity (Private Associations)1. Habitat for Humanity2. Build Houses for "deserving families"3. No Government Regulation4. Volunteer Labor to Build – New owner helps build5. Often donated land/lots and MaterialsH. Property Tax Credits (State and Local Government)1. Limited Income Seniors (Over 65 usually)2. Sometimes for Low Income (60% or below)I. Maintenance Grant Programs (State Local/Private)1. paint Up/Fix UP Repairs2. (Seniors/Very Low Income)
    16. 16. III. Financing Programs for Affordable RENTAL HOUSINGA. Construction and Permanent Loans INSURED by Federal Government (FHA)1. RENTS Restricted2. Rent only to Low and Moderate Income Buyers (60% – 80% AMIB. Operating Subsidy Contract for a Property (Section 8 HAP contract)C. Individual Rent Vouchers (Subsidy to the Tenant)D. Public (Government built/owned/operated ) Rental HousingE. Federal GRANTS (and some state and local) – HOPE VI1. Redevelopment of old public housing sites2. Demolition of former concentratedlow income housing apartments3. Replaced with Mixed-Income Apartments serving:30% low income (under 30% AMI)30% Moderate income (50- 60% AMI)30% work force or Market (60 – 120%+) AMI
    17. 17. V. Affordable Rental Housing Programs (cont.)F. Land Donation1. Maryland state Partnership program2. Federal Government (through HOPE VI)G. PROPERTY TAX Reductions – PILOTS or Cancellation(State/Local Government)s1. Private Owners/Developers2. Reduces cost of operating so rents are lower3. Residents at 0 – 80% AMI4. 30 Year restrictions5. Must Take Rental Vouchers6. Must provide Services
    18. 18. Generation Perspectives on Residential Mobility:Implications for Housing DemandLisa A. Sturtevant, PhDDeputy Director, Center for Regional AnalysisAssociate Research Professor, School of Public PolicyGeorge Mason UniversityMay 17, 2013
    19. 19. Research Questions• How do current and historic mobility rates vary by age cohortand are these differences supported by the life-cycle theory ofresidential mobility and migration?• Are life-cycle events associated with residential mobilityshifting to later years?• Can lower U.S. mobility rates be decomposed into overalllower propensities to move, changes in the sizes of the mostand least mobile age cohorts, and different residentialmobility processes for generational cohorts?• Will the Echo Boomers and Baby Boomers make differentchoices about moving and homeownership compared withthe predecessor generations?
    20. 20. Data Sources• Current Population Survey• Decennial Census• American Community Survey• American Housing Survey
    21. 21. Residential mobility rates in the U.S. have beenfalling since the 1960s…
    22. 22. Life-Cycle Theory of Residential Mobility• The process by which families and individualschange their housing to meet housing needsthat are generated by shifts in familycomposition and economic situation thataccompany life-cycle changes (Rossi1954, 1980; Greenwood 1975)• Major life-cycle events:Marriage, childbearing, jobchange, retirement• Age is strongly related to life-cycle events
    23. 23. Younger people are consistently more likely tomove.
    24. 24. Younger people are not more likely to makelong-distance moves.AgeState-to-stateSame state,differentcountyWithincountyFromabroad20 to 24 years 15% 20% 61% 4%25 to 29 years 16% 20% 61% 4%30 to 34 years 16% 19% 62% 4%35 to 39 years 16% 19% 61% 4%40 to 44 years 17% 19% 61% 3%45 to 49 years 17% 19% 61% 3%50 to 54 years 18% 20% 59% 3%55 to 59 years 22% 22% 53% 3%60 to 64 years 20% 22% 55% 2%65+ years 17% 20% 60% 3%Proportion of Moves by Distance and Mover Age Group: 1986-2012Source: Current Population Survey
    25. 25. Between 2001 and 2007, long-distance mobilityrates dropped sharply.
    26. 26. The decline in mobility can be partially explainedby the population’s age distribution.1980 1990 2000 2010Under 5 years 7.2% 7.5% 6.8% 6.5%5 to 9 years 7.4% 7.3% 7.3% 6.6%10 to 14 years 8.1% 6.9% 7.3% 6.7%15 to 19 years 9.3% 7.2% 7.2% 7.1%20 to 24 years 9.4% 7.7% 6.7% 7.0%25 to 29 years 8.6% 8.6% 6.9% 6.8%30 to 34 years 7.8% 8.8% 7.3% 6.5%35 to 39 years 6.2% 8.0% 8.1% 6.5%40 to 44 years 5.2% 7.1% 8.0% 6.8%45 to 49 years 4.9% 5.5% 7.1% 7.4%50 to 54 years 5.2% 4.5% 6.2% 7.2%55 to 59 years 5.1% 4.2% 4.8% 6.4%60 to 64 years 4.5% 4.3% 3.8% 5.4%65+ years 11.3% 12.5% 12.4% 13.0%Mobility rateChange (pp)1980-90 1990-00 2000-100.67 -1.85 -3.59U.S. Population Distribution by Age GroupSource: U.S. Census Bureau.
    27. 27. The relationship between the age distribution ofthe population and mobility rates changed inthe last decade.OverallState-to-statemobilitySame state,differentcountyWithincounty20 to 24 years 0.4142 0.4021 0.5327 -0.110225 to 29 years -0.8596 -0.9068 -0.7677 0.140730 to 34 years 0.8251 0.9258 0.7122 -0.242835 to 39 years 0.8247 0.8765 0.7884 -0.260340 to 44 years 0.9178 0.9702 0.9327 -0.309145 to 49 years -0.0751 -0.1801 0.1577 0.007650 to 54 years -0.9175 -0.9682 -0.9104 0.272155 to 59 years -0.7845 -0.8971 -0.7172 0.327660 to 64 years -0.9007 -0.9448 -0.9215 0.307365+ years -0.8658 -0.8706 -0.9589 0.2871Correlation CoefficientsShare of Population in Each Age Group to Overall Population Mobility Rates:2001-2010
    28. 28. Echo Boomers are much less mobile thanprevious generations were when they were intheir 20s.
    29. 29. The drop in mobility rates between 2001 and2007 was due to less long-distance migration…TimePeriodOverallmobility (%change)State-to-state(% change)Same state,different county(% change)Withincounty(% change)From abroad(% change)1986-2001 -23.7% -5.6% -26.3% -29.8% 23.7%2001-2007 -6.6% -41.2% -7.3% 8.2% -36.1%2007-2012 -9.4% -0.1% -12.4% -10.5% -7.0%Changes in Mobility Rates by Distance
    30. 30. …and less moving by people in their 20s.TimePeriodOverallmobility(% change)Age Group (rate % change)20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65+1986-2001 -23.7% -10.2% -12.5% -10.8% -17.7% -21.9% -18.8% -22.3% -13.3% -24.0% -22.3%2001-2007 -6.6% -17.7% -12.9% -4.9% -1.4% -1.8% -4.4% 5.5% -15.4% 7.9% -9.4%2007-2012 -9.4% -8.6% -4.3% -8.2% -7.0% -13.4% -5.7% -5.2% -5.5% -17.1% -9.5%Changes in Mobility Rates by Age Group
    31. 31. Echo Boomers are delaying life-cycle events…1990 2000 201120 to 24 years 28.3 26.0 12.725 to 29 years 61.7 56.3 40.330 to 34 years 78.6 74.2 63.435 to 44 years 88.8 84.4 78.845 to 54 years 94.1 91.2 85.655 to 59 years 95.2 94.3 89.760 to 64 years 95.2 95.2 92.4Percentage of Individuals Who Are Married or Have EverBeen Married by Selected Age GroupSource: 1990 Census 5% sample IPUMS; 2000 Census, Summary File 3; 2011American Community Survey1990 2000 200820 to 24 years 116.5 109.7 103.025 to 29 years 120.2 113.5 115.130 to 34 years 80.8 91.2 99.335 to 39 years 31.7 39.7 46.940 to 44 years 5.5 8.0 9.8Source: U.S. National Center for Health Statistics, Centers for Disease Control.Birth Rate (per 1,000 Women)
    32. 32. …and so are Baby Boomers
    33. 33. Homeownership rates have declined fastest forEcho Boomers.
    34. 34. Reasons for moving have also changed.
    35. 35. Some conclusions• The life-cycle theory is a good—though not perfect—model for residentialmobility trends.• The long-term decline in residential mobility can be partially explained bychanges in the age distribution of the population.– Other factors: increased availability of information, convergence of stateeconomies• Echo Boomers have been making different mobility and housing choicedecisions than prior generations.– The recession and housing market downturn is likely more important thanchanging preferences.– The delay in marriage and childbearing is also related to the delay in movingand homeownership.• Baby Boomers also are delaying moving.– The economic downturn has led to a delay in retirement.
    36. 36. Lisa A. Sturtevantlsturte2@gmu.edu(703) 993-9148
    37. 37. Challenges and Opportunitiesfor Housing andHomeownershipLucy Gorham, Senior Research AssociateNational Association of Realtors MeetingWashington, D.C. May 17, 2013
    38. 38. Risk of Serious Delinquency Varies byMortgage Product39Note: CAP delinquency rate taken from a portfolio of CAP loans managed by Self-Help Credit Union. Sources: Mortgage Bankers Association; Fannie Mae CreditSupplements; Center for Community Capital
    39. 39. Restrictive Underwriting Lowers Default But Closes Off Access toA Higher Percentage of Borrowers801020304050607080LTV97%LTV90%LTV80%FICO>600FICO>660FICO>690DTI45%DTI36%DTI30%DTI27%PercentofLoansExcluded
    40. 40. Excessive Risk Reduction Would Exclude Too ManyPerforming Loans from the Market11Alternate Underwriting Criteria Exclusion Ratio(Number of QM Performing Loans Excludedper Prevented Default)Universe: QM LoansLTV 97% 6:1LTV 90% 9:1LTV 80% 10:1FICO < 600 5:1FICO < 660 6:1FICO < 690 7:1DTI 45% 9:1DTI 36% 10:1DTI 30% 11:1DTI 27% 12:1LTV 97%, FICO 600, and DTI 45% 8:1LTV 90%, FICO 660, and DTI 36% 10:1LTV 80%, FICO 690, and DTI 30% 12:1
    41. 41. Low- and Moderate-Income Households Significantly Affectedby Large Down-payment Requirements120102030405060703% Downpayment 10% Downpayment 20% DownpaymentPercentofPerformingLoansExcludedLow-Income Moderate-Income Middle-Income Upper-IncomeMeasure: % of Performing Loans Excluded
    42. 42. More Restrictive Down Payment Requirements Will Have ADisproportionate Impact on Communities of Color1201020304050607080903% Downpayment 10% Downpayment 20% DownpaymentPercentofPerformingLoansExcludedNon-Hispanic White African American Latino AsianMeasure: % of Performing Loans Excluded
    43. 43. New Housing DemandWill Increasingly ComeFrom Minority FamiliesWho Tend to HaveLower Wealth and NeedAccess toMainstream, SustainableLoan ProductsSource: Population figures from Taylorand Cohn, Pew Research Center: Socialand Demographic Trends, 2012;Wealth figures fromMcKernan, Ratcliffe, Steuerle, Zhang, The Urban Institute, 201344-60-40-20020406080White Hispanic BlackChanges in Population Share andWealthPop Share2011Pop Share2050(projected)Δ Wealth2007-10
    44. 44. Contact Us Lucy GorhamSenior Research AssociateUNC Center for Community Capital919.843.3976 ▪ Lucy_Gorham@unc.edu www.ccc.unc.edu45

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