Challenges & Opportunities in Housing and Homeownership

Challenges & Opportunities in Housing and Homeownership

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

This Morning’s Panel

Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?

The Longer Term

Patric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market

Mobility in the Single-Family Housing Market

Patric H. Hendershott, Jin Man Lee, and James D. Shilling

DePaul University

May 17, 2013

January

2005

April 2005

July 2005

October

2005

January

2006

April 2006

July 2006

October

2006

January

2007

April 2007

July 2007

October

2007

January

2008

April 2008

July 2008

October

2008

January

2009

April 2009

July 2009

October

2009

January

2010

April 2010

July 2010

October

2010

January

2011

April 2011

July 2011

October

2011

January

2012

April 2012

July 2012

October

2012

January

2013

April 2013

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Source: Fannie Mae PMMS Data

Mtg Rate Sprd

Month

30-y

r FRM

Rat

e, %

Spre

ad, %

Quantitative Easing has Resulted in Record-Low Interest Rates

Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?

The Longer Term

Patric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market

Immediate Opportunity to Take Advantage of Unconventional Monetary Policy Effects

Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?

The Longer Term

Patric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market

Janu

ary

2010

Febr

uary

201

0M

arch

201

0Ap

ril 2

010

May

201

0Ju

ne 2

010

July

201

0Au

gust

201

0Se

ptem

ber 2

010

Oct

ober

201

0No

vem

ber 2

010

Dece

mbe

r 201

0Ja

nuar

y 20

11Fe

brua

ry 2

011

Mar

ch 2

011

April

201

1M

ay 2

011

June

201

1Ju

ly 2

011

Augu

st 2

011

Sept

embe

r 201

1O

ctob

er 2

011

Nove

mbe

r 201

1De

cem

ber 2

011

Janu

ary

2012

Febr

uary

201

2M

arch

201

2Ap

ril 2

012

May

201

2Ju

ne 2

012

July

201

2Au

gust

201

2Se

ptem

ber 2

012

Oct

ober

201

2No

vem

ber 2

012

Dece

mbe

r 201

2

130

132

134

136

138

140

142

144

146

148

150

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

6,000,000

Source: McGraw Hill Financial S&P/Case-Shiller House Price IndexNational Association of Realtors Existing-Home Sales

Case

/Shi

ller H

ouse

Pric

e In

dex

Existi

ng H

ome

Sale

s

Higher House Prices will Unlock Households with Low or Mildly Negative Equity

Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?

The Longer Term

Patric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market

North West South North/West Far South0%

5%

10%

15%

20%

25%

30%

35%

40%

Source: Institute for Housing Studies, DePaul UniversityPolicy Simulation of Increase in House Prices

Hous

ehol

ds w

ith N

egati

ve E

quity

, %

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 t+1 t+2 t+3 t+4 t+5

Likely to See Mortgage Rate Lock-in Effects Similar to those Observed in Late 1960s and Early 1970s

Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?

The Longer Term

Patric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market

North West South North/West Far South0%

10%

20%

30%

40%

50%

60%

Source: Institute for Housing Studies, DePaul UniversityPolicy Simulation of Increase in Mortgage Rate

Borr

ower

s who

are

Lock

ed In

to T

heir

Loan

, %

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 t+1 t+2 t+3 t+4 t+5

Net Effect is Likely to Reduce Residential Transactions

Unconventional Monetary Policy EffectsWhat Does this Mean for REALTORS?

The Longer Term

Patric H. Hendershott, Jin Man Lee, and James D. Shilling Mobility in the Single-Family Housing Market

North West South North/West Far South0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

Source: Institute for Housing Studies, DePaul UniversityNet Effect of House Price Increase and Interest Rate Increase on Trading Volume

Existi

ng-H

ome

Sale

s/To

tal H

ousin

g Un

its, %

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 t+1 t+2 t+3 t+4 t+5

AFFORDABLE HOUSING IN THE US

May 17, 2013

I. Levels of Income that Affordable Programs serve:

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

II. Financing Programs for Affordable OWNERSHIP Housing

A. Income Tax Deduction (for Interest) (Federal/State)1. Everyone Qualifies2. No Income Limits on Who Qualifies

B. 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)

II. Affordable Homeownership (cont.)C. Federal Government Insured Purchase Loans for Buyers (FHA/VA)

1. First Time Home Buyers Qualify2. Restrictions

i. Buyer is required to RESIDE in home (no investors)ii. Can RESELL to anyone without restriction

D. Private Bank/Government Insurance for Loans for Buyers (FHA/VA)1. Private Banks make the most loans

i. Federal Government insures loan so Private Banks will make at reduced loan requirements

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 Program

3. First loan from Bank – much lower amount4. Can be Done in Form of a Grant or Soft Loan

5. Repayment Terms on Soft Loan (lots of variations)A) Pay back the loan when SELL

i. split profit by percentage with the Local government 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 years

the loan is "forgiven"iii. If sell before the 10th year, then pay back

percentage out of proceeds of sale

IV. Affordable Housing Mechanisms (cont.)F. Required New Construction [MDPUs]

1. To Obtain Zoning/Planning/Building Permits for New Construction

2. 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 "Affordable

Homes" (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 back

portion"9. More recently, restrictions on resale

II. Affordable Ownership Mechanisms (Cont.)G. Sweat Equity (Private Associations)

1. Habitat for Humanity 2. Build Houses for "deserving families"3. No Government Regulation4. Volunteer Labor to Build – New owner helps build5. Often donated land/lots and Materials

H. 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 Repairs 2. (Seniors/Very Low Income)

III. Financing Programs for Affordable RENTAL HOUSING

A. Construction and Permanent Loans INSURED by Federal Government (FHA)1. RENTS Restricted2. Rent only to Low and Moderate Income Buyers (60% – 80% AMI

B. 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 Housing

E. Federal GRANTS (and some state and local) – HOPE VI1. Redevelopment of old public housing sites2. Demolition of former concentrated low 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

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)s

1. Private Owners/Developers2. Reduces cost of operating so rents are lower 3. Residents at 0 – 80% AMI4. 30 Year restrictions5. Must Take Rental Vouchers6. Must provide Services

Generation Perspectives on Residential Mobility: Implications for Housing Demand

Lisa A. Sturtevant, PhDDeputy Director, Center for Regional Analysis

Associate Research Professor, School of Public PolicyGeorge Mason University

May 17, 2013

Research Questions• How do current and historic mobility rates vary by age cohort

and are these differences supported by the life-cycle theory of residential mobility and migration?

• Are life-cycle events associated with residential mobility shifting to later years?

• Can lower U.S. mobility rates be decomposed into overall lower propensities to move, changes in the sizes of the most and least mobile age cohorts, and different residential mobility processes for generational cohorts?

• Will the Echo Boomers and Baby Boomers make different choices about moving and homeownership compared with the predecessor generations?

Data Sources• Current Population Survey • Decennial Census • American Community Survey• American Housing Survey

Residential mobility rates in the U.S. have been falling since the 1960s…

Life-Cycle Theory of Residential Mobility

• The process by which families and individuals change their housing to meet housing needs that are generated by shifts in family composition and economic situation that accompany life-cycle changes (Rossi 1954, 1980; Greenwood 1975)

• Major life-cycle events: Marriage, childbearing, job change, retirement

• Age is strongly related to life-cycle events

Younger people are consistently more likely to move.

Younger people are not more likely to make long-distance moves.

Age State-to-state

Same state, different county

Within county

From abroad

20 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: 1986-2012

Source: Current Population Survey

Between 2001 and 2007, long-distance mobility rates dropped sharply.

The decline in mobility can be partially explained by 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 -3.59

U.S. Population Distribution by Age Group

Source: U.S. Census Bureau.

The relationship between the age distribution of the population and mobility rates changed in the

last decade.

Overall State-to-state mobility

Same state, different county

Within county

20 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 0.2871

Correlation CoefficientsShare of Population in Each Age Group to Overall Population Mobility Rates:

2001-2010

Echo Boomers are much less mobile than previous generations were when they were in

their 20s.

The drop in mobility rates between 2001 and 2007 was due to less long-distance migration…

Time Period

Overall mobility (%

change)

State-to-state(% change)

Same state, different county

(% change)

Within county

(% 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

…and less moving by people in their 20s.

Time Period

Overall mobility

(% 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

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 92.4

Percentage of Individuals Who Are Married or Have Ever Been Married by Selected Age Group

Source: 1990 Census 5% sample IPUMS; 2000 Census, Summary File 3; 2011 American Community Survey

1990 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 9.8

Source: U.S. National Center for Health Statistics, Centers for Disease Control.

Birth Rate (per 1,000 Women)

…and so are Baby Boomers

Homeownership rates have declined fastest for Echo Boomers.

Reasons for moving have also changed.

Some conclusions

• The life-cycle theory is a good—though not perfect—model for residential mobility trends.

• The long-term decline in residential mobility can be partially explained by changes in the age distribution of the population.– Other factors: increased availability of information, convergence of state

economies• Echo Boomers have been making different mobility and housing choice

decisions than prior generations.– The recession and housing market downturn is likely more important than

changing preferences.– The delay in marriage and childbearing is also related to the delay in moving

and homeownership.• Baby Boomers also are delaying moving.

– The economic downturn has led to a delay in retirement.

Lisa A. Sturtevantlsturte2@gmu.edu

(703) 993-9148

Challenges and Opportunities for Housing and

HomeownershipLucy Gorham, Senior Research AssociateNational Association of Realtors Meeting

Washington, D.C. May 17, 2013

38

Despite Crisis, Homeownership Builds Wealth for LMMI Households When “Done Right”

CAP Owners’ and Renters’ Median Net Worth in 2011, by Net Worth in 2005

<$0 $0-$10,000 $10,000-$20,000 $20,000-$30,000 >$30,000$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

Own-ownOwn-rentRent-rentRent-own

Net worth in 2005

Med

ian

net w

orth

in 2

011

39

Risk of Serious Delinquency Varies by Mortgage Product

Note: CAP delinquency rate taken from a portfolio of CAP loans managed by Self-Help Credit Union. Sources: Mortgage Bankers Association; Fannie Mae Credit Supplements; Center for Community Capital

Restrictive Underwriting Lowers Default But Closes Off Access to A Higher Percentage of Borrowers

8

LTV

97

%

LTV

90

%

LTV

80

%

FIC

O>

60

0

FIC

O>

66

0

FIC

O>

69

0

DTI

45

%

DTI

36

%

DTI

30

%

DTI

27

%

Universe: QM Loans

0

10

20

30

40

50

60

70

80

Perc

en

t of

Loan

s Excl

ud

ed

Excessive Risk Reduction Would Exclude Too Many Performing Loans from the Market

11

Alternate Underwriting Criteria 

Exclusion Ratio (Number of QM Performing Loans Excluded

per Prevented Default)

Universe: QM Loans  LTV 97% 6:1LTV 90% 9:1LTV 80% 10:1   FICO < 600 5:1FICO < 660 6:1FICO < 690 7:1   DTI 45% 9:1DTI 36% 10:1DTI 30% 11:1DTI 27% 12:1   LTV 97%, FICO 600, and DTI 45% 8:1LTV 90%, FICO 660, and DTI 36% 10:1LTV 80%, FICO 690, and DTI 30% 12:1

Low- and Moderate-Income Households Significantly Affectedby Large Down-payment Requirements

12

3% Downpayment 10% Downpayment 20% Downpayment0

10

20

30

40

50

60

70

Low-Income Moderate-Income Middle-Income Upper-Income

Perc

en

t of

Perf

orm

ing

Loan

s

Exclu

ded

Measure: % of Performing Loans Excluded

More Restrictive Down Payment Requirements Will Have A Disproportionate Impact on Communities of Color

12

3% Downpayment 10% Downpayment 20% Downpayment0

10

20

30

40

50

60

70

80

90

Non-Hispanic White African American Latino Asian

Perc

en

t of

Perf

orm

ing

Loan

s

Exclu

ded

Measure: % of Performing Loans Excluded

44

New Housing Demand Will Increasingly Come From Minority Families Who Tend to Have Lower Wealth and Need Access to Mainstream, Sustainable Loan Products

Source: Population figures from Taylor and Cohn, Pew Research Center: Social and Demographic Trends, 2012; Wealth figures from McKernan, Ratcliffe, Steuerle, Zhang, The Urban Institute, 2013

White Hispanic Black

-60

-40

-20

0

20

40

60

80

Changes in Population Share and Wealth

Pop Share 2011

Pop Share 2050 (pro-jected)

Δ Wealth 2007-10

Contact Us Lucy Gorham

Senior Research Associate

UNC Center for Community Capital

919.843.3976 ▪ Lucy_Gorham@unc.edu

www.ccc.unc.edu

45