Helping Young Households Find the Housing That’s Right for Them
By Anne Segrest McCulloch | September 8, 2016
Recent data from the U.S. Census Bureau shows a continuing slide in the national homeownership rate. According to data the Census Bureau reported on July 28 from the quarterly Housing Vacancy Survey, the national homeownership rate fell from its peak of 69.2 percent in the fourth quarter of 2004 to 62.9 percent in the second quarter of 2016.
In its analysis of Census data, the Joint Center for Housing Studies of Harvard University attributes the decline to a range of factors that have challenged household growth and formations and discouraged home purchases. These factors include tighter credit standards, lingering unemployment, stagnating wages, and rising student loan debt.
The Census Bureau data indicate that these factors seem especially challenging for young adults and minorities.
Homeownership rates for those under age 35 fell 4.9 percentage points – from 39.0 percent in the second quarter of 2010 to 34.1 percent in the second quarter of 2016.
In this year’s second quarter, the homeownership rate for whites was at 71.5 percent, Asians at 53.7 percent, Latinos at 45.1 percent, and African-Americans at 41.7 percent.
In order to close these differences, we need to understand some of the facts behind them.
What Fannie Mae Knows
There are many reasons for these disparities – with life-stage, income, and assets among the more easily defined.
Minorities – who will drive household formations in the coming decades – are trending younger. According to the Census Bureau’s 2015 American Community Survey, the median age of white Americans is 43. By comparison, it’s 35 for Asians, 32 for African Americans, and 27 for Latinos.
There’s also an income gap. According to the Pew Research Center, the average hourly wages in 2015 for African American and Hispanic men were $15 and $14, respectively, compared with $21 for white men. With hourly earnings of $24, only Asian men outpaced white men.
Despite such disparities, Fannie Mae research finds a continuing desire for homeownership among young renters. This includes “Millennials” between the ages of 18 and 34 – a demographic larger and more diverse than preceding generations, according to the Census Department.
The July National Housing Survey®, conducted by Fannie Mae’s Economic and Strategic Research (ESR) Group, shows growing interest in owning a home. The share of consumers who said they would buy if they were going to move increased to 67 percent, while the share of consumers who said they would rent moved down to 26 percent, equaling an all-time low.
This desire for homeownership – coupled with the size of the emerging population and the real disparities in income and assets – suggests that the mortgage industry faces a significant challenge in meeting the needs of American consumers.
At Fannie Mae, we are committed to rising to that challenge and building mortgage products and tools to support consumers who are ready to explore homeownership.
Using Outreach and Research to Identify Solutions
I spend a lot of time at affordable housing events meeting with lenders, real estate agents, and housing counselors, and hearing about the challenges facing today’s homebuyers. I also work closely with Fannie Mae’s ESR Group, our analytics teams, and our customer account teams in understanding what the data tell us about consumer and lender attitudes, knowledge, and needs.
The research and outreach we’re doing allows us to develop innovative products and helpful tools that consumers need to achieve sustainable homeownership.
Research into how consumers live – particularly our research on extended income households – allowed us to build flexibilities into our HomeReady® mortgage that recognize more of the income and economic support that consumers actually have.
Our consumer surveys have shown us that many consumers don’t know what it takes to get a mortgage. For example, most consumers – up to 84 percent – think they need a higher down payment than is actually required (3 percent for most Fannie Mae loans, for those who otherwise qualify).
Our research, based on the National Housing Survey, shows that households of modest means and minority households are less informed about information such as minimum down payments. More than half (54 percent) of those with income below $50,000 answered “don’t know” when asked the minimum down-payment requirement. Forty-seven percent of African Americans and 48 percent of Latinos gave the same answer.
This knowledge gap helped drive a recently announced enhancement to HomeReady – where we will provide lenders with a loan-level price adjustment credit for loans that they originate and sell to Fannie Mae, where consumers have completed one-on-one counseling from HUD-approved housing counseling agencies before they sign a home purchase contract.
Additionally, our outreach and engagement with lenders and real estate agents has taught us that we need to continue to simplify our products, to deliver good product education, and to provide marketing tools that lenders and real estate professionals can use.
As a result, we have announced simplified eligibility requirements for HomeReady and are offering:
- An online Marketing Center where real estate agents and lenders can download free marketing materials they can customize to meet their business needs.
- Regular live webinars for loan officers and real estate agents explaining our products.
- Product materials available on our business portal to help loan officers and real estate agents get their customers into a home.
We know the next generation of households may look and live differently and may have different economic profiles than buyers of 20 years ago.
We want all American consumers to have the tools they need to make the housing choice that’s right for them. So when they’re ready to buy a home, they can achieve sustainable, successful homeownership. That’s what we’re focused on.
Anne Segrest McCulloch is Fannie Mae’s senior vice president for credit and housing access.
Note: This article first appeared on The Home Story, also a Fannie Mae website.
Estimates, forecasts, and other views expressed in this article should not be construed as indicating Fannie Mae’s expected results, are based on a number of assumptions, and may change without notice. How this information affects Fannie Mae will depend on many factors. Neither Fannie Mae nor its Economic & Strategic Research (ESR) Group guarantees that the information in this article is accurate, current, or suitable for any particular purpose. Changes in the assumptions or underlying information could produce materially different results. The ESR Group’s views expressed in this article speak only as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.