Charlene Crowell (courtesy photo)
Charlene Crowell (courtesy photo)

The State of the Nation’s Housing, released annually by Harvard University’s Joint Center for Housing Studies (JCHS), is broadly recognized throughout the housing industry as an authoritative source for researchers, industry analysts, policymakers and the business community.

For consumers, however, the annual report helps to explain the significant housing challenges confronted by renters and homeowners alike.  As consumers either grow into wealth or fall into poverty, America’s middle class, once the envy of the world, is steadily shrinking.

At the centerpiece of this disturbing trend is housing with costs that continue to rise faster than incomes. And with that trend, a more robust economy is further delayed and the so-called ‘housing recovery’ still leaves behind those who were most harmed by the foreclosure crisis.

“The question is not so much whether families will want to buy homes in the future, but whether they will be able to do so,” says Chris Herbert, managing director of Harvard’s JCHS. “Tight mortgage credit, the decade-long falloff in incomes that is only now ending, and a limited supply of homes for sale are all keeping households – especially first-time buyers on the sidelines.”

“And even though a rebound in home prices has helped to reduce the number of underwater owners,” continued Herbert, “the large backlog of foreclosures is still a serious drag on homeownership.”

An examination of America’s renters found that more than 21.3 million consumers are “cost-burdened”, paying more than 30 percent of their income for housing. These are also families that delay medical care or cut back on grocery purchases in an effort to meet their housing costs, according to the report. Over the last 10 years, 9 million more people became renters, the largest share since the late 1960s.

Newly-constructed multifamily rental housing built in 2015, came with a median cost of $1,381 per month – more than the principal and interest payments for a median priced home in 2015 – only $834. This median mortgage priced assumed a 10 percent down payment on a 30-year, fixed-rate mortgage. In 2015, the average interest rate on fixed-rate loans was less than 4 percent; by April of this year, the average rate fell to 3.6 percent.

“The record number of renters paying more than half their incomes for housing underscores the growing gap between market-rate costs and the rents that millions of households can afford,” states the report.

With more than 43 million households having less than $25,000 in net wealth, their ability to save for a home down payment is more than challenging. If repaying student debt is a concern, many former students now opt to continue living with family rather than beginning their own households.

And therein lies the rub for so many consumers desiring to make the important switch from renters to homeowners. With escalating rental costs, modest income increases – if at all – how can consumers find a practical way to have their own American Dream?

For the third straight year, first-time buyers dropped again to 32 percent, its lowest level since 1987. At the same time, the median sales price of an existing home rose in 2015 to $222,400, and that for a newly-constructed home was even higher at $296,400. Overall, low inventories of homes for sale also contribute to rising sale prices.

Consider these additional JCHS data points:

  • Today only 63.7 percent of all consumers own their homes – the lowest level in nearly 50 years and an unprecedented decline;
  • Racial disparities in homeownership continue as Black homeownership rates dropped to 43 percent, compared to 71.9 percent for Whites and 45.6 percent for Latinos
  • Skewed racial wealth levels show that while the median net worth of Whites stands at $134,200, the comparable figures for Latinos is $13,700 and even less for Blacks at $11,000

For housing and consumer advocates, low down payment mortgages can bridge the current homeownership gap.

“By 2025, nearly half of all future first-time homebuyers will be people of color,” said Nikitra Bailey, executive vice president with the Center for Responsible Lending. “The current tide of mortgage lending excludes credit-worthy Americans who deserve access to mortgage loans. Ample evidence proves that a broad range of borrowers can become successful homeowners when their loans are free from risky features. Moreover, the Dodd-Frank Wall Street Reform and Consumer Protection Act’s regulations have made the financial system safer.”

Other housing advocates offered concurring statements.

“Because minority homeownership rates have historically been lower than that of Whites doesn’t mean that they have to continue along the same path,” said Marietta Rodriguez, vice president of homeownership programs and lending at Neighborworks, a congressionally-chartered nonpartisan nonprofit based in Washington, DC. “If we want the homeownership rate to increase, then credit requirements – especially around qualifying credit scores for the best mortgage rate available – have to make sense. Today they don’t.”

“To have a dependable, well-functioning housing market, you need a critical mass of capital and housing expertise to keep buyers buying, sellers selling, and local communities growing,” said David Lipsetz, Associate Administrator for USDA Rural Housing Service. “If a place does not have enough capital, credit, or investment it will struggle to produce new houses and maintain home values. If a place does not have enough builders, skilled trades, realtors, appraisers, and title companies it will struggle to renovate and replace older housing, let alone build new homes.”

Government-backed mortgage loans from USDA, FHA and VA are often the ones that consumers of color access. While access to these loans is important, there is scant access for Blacks and Latinos to the lowest-cost mortgages available and known as conventional. Their fixed rates and 30 year terms are devoid of many fees that automatically come from government-backed loans, such as mortgage insurance premiums.

According to the 2014 Home Mortgage Disclosure Act (HMDA) report, the most recent one available, Out of 1,736,000 conventional mortgage loans for purchases, Black borrowers received only 45,544 – 2 percent; Latino borrowers fared slightly better, receiving 87,570 or 5 percent.

“While reducing the growing isolation of the poor is key,” states the JCHS report, “addressing the self-segregation of the wealthy is also essential.”

A sustained growth of America’s middle class would likely accomplish both.