Dive Brief:
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The U.S. homeownership rate is caught in a holding pattern due to the combination of home-price growth, student loan debt, mortgage availability, inventory shortages and a negative view of homeownership following the foreclosure crisis, according to a new report from the National Association of Realtors.
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“Hurdles to Homeownership: Understanding the Barriers” notes that by 2019, 5 million fewer households will be able to afford a median-priced home in their market as compared to those that could in 2016.
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The homeownership rate fell considerably after the recession and has since failed to recover, although it has turned up in recent quarters. The rate, which was 63.6% in Q1 2017, is expected to stabilize and could improve going forward.
Dive Insight:
In its report, the NAR lays out some of the hurdles homebuyers and builders face today. For younger buyers, these hurdles tend to be high. The NAR notes that the homeownership rate among 25- to 29-year-olds is 30.9%, down from that group’s peak of 41.8%. The homeownership rate for 30- to 34-year-olds is higher, at 44.6%, down from a peak of 57.4%, but still well below the national average. (The peaks were reached between 2004 and 2007.)
High (though stabilizing) rents and student loan debt are among the factors making it difficult for this cohort to save for a down payment — something that becomes more of a challenge as home prices increase. Meanwhile, tighter lending conditions have many buyers with good credit scores unable to qualify for a mortgage. And even for buyers who could otherwise get a mortgage, finding a suitable property at their price point is a challenge.
In response, the industry is reaching out to younger buyers with targeted home-product lines, financing incentives and information to educate them about the homebuying process.
Over the last few years, several national and regional homebuilders have added new-home lines with smaller floor plans, fewer features and a lower price-point targeting the entry-level buyer — among them, D.R. Horton, Meritage Homes and Toll Brothers.
Meanwhile, private lenders are offering incentives like credit card points and air miles in exchange for customers taking out a mortgage with them. Big banks have also added mortgage options with lower down payments to help those who could afford a monthly mortgage but can’t amass the typical 20% down. (FHA loans are also attracting interest.)
Other initiatives have focused on education. To help younger buyers understand the costs of owning a home, Zillow last month debuted RealEstate.com. The website targets millennials and first-time buyers and lets them browse listings with associated costs based on their preferred down payment and monthly mortgage.