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Addressing the Question of Home Affordability

housesHomeownership has rebounded to a post-2008 high of 64.3 percent, according to recent data, and home prices continue to move higher, indicating a generally healthy market. With rising home prices and more homeowners, the total amount of equity owners have in real estate is expected to increase by $1.4 trillion this year, bringing net housing equity (home value less outstanding mortgages) to more than $15 trillion. But these figures obscure some developing trends, from regional trouble spots to demographic shifts.

Homeownership rates in Los Angeles and Orange counties in California declined from post-recession highs to the nation’s worst showing in the second quarter of 2018, according to the Orange County Register. Just 48.8 percent of households in Los Angeles and Orange counties lived in homes they owned, the lowest rate among the 75 largest major metropolitan areas tracked. The Urban Institute reports that the percentage of African-Americans who own a home dropped in Michigan more than in any other state, down to 40 percent in 2016 from just over half in 2000. The homeownership rate for millennials was 37.5 percent in 2016, about three percentage points lower than the historical average and eight percentage points lower than the all-time high in 2004, due at least in part to the rising burden of student debt.

The Challenge of Affordability

Communities across America are confronting the troubling reality that while the people who keep them stable, safe and thriving—police officers, firefighters, teachers, social workers—often have stable employment and incomes, they still may not be able to buy homes in the communities they serve. It’s a problem all of us should be concerned about and devote resources to addressing.

What’s the best way to encourage a steady inflow of responsible first-time homebuyers whose presence will strengthen neighborhoods and maintain civic values? Beyond the overarching issue of affordability, coming up with a down payment and qualifying for credit are the biggest barriers to home ownership, the Urban Institute reports.

Several fintechs have introduced initiatives in the past few years in attempts to narrow the homeownership gap. One company, Loftium, offers aspiring homeowners up to $50,000 for a down payment if they agree to rent a room on Airbnb and share the income. Others are turning to crowdfunding sites, such as HomeFundMe, and asking friends and family for monetary support.

Communities across the nation are responding by creating low down payment mortgage programs for public safety workers and teachers. South Carolina recently expanded a down payment assistance program offering up to $6,000 to qualifying law enforcement officers, teachers, nurses, and others to encourage them to become first-time homebuyers, according to the Charleston Post & Courier.

In San Diego, California, The Union-Tribune reports that leaders are considering a down payment program to offer up to $50,000 as incentives for police officers to live within the city after agreeing to stay on the force for a number of years. Phoenix, Arizona, has a similar program offering many teachers and first responders a 5 percent grant for a down payment on a Phoenix-area home.

The Solution

Nationally, lenders are offering mortgages with low down payments to public safety workers, teachers, and other salaried professionals. Mortgage insurance protects these lenders from loss and allows for down payments as low as 1 percent for borrowers who qualify.  

The impetus behind programs like these is to reward qualified borrowers for choosing a career focused on public service and to recognize the critical role of first-time homebuyers in building stronger towns and cities by helping lenders to qualify more of them for homeownership.

In terms of public safety, having police, firefighters, and EMTs living nearby improves neighborhood safety. Residents put more trust in their public safety institutions and schools when they personally know police officers, teachers, and other public employees as their neighbors.

Another innovative program is aimed at degreed professionals who provide valuable services in communities, may have good salaries and credit but are unable to save for a down payment because of student debt payments. These borrowers include certified public accountants (CPAs), chartered financial analysts (CFAs), Ph.Ds, architects, certified mortgage bankers and designated actuaries.

Instead of penalizing ambitious millennials for pursuing higher education, we should enable them to put down roots in communities through homeownership, further strengthening those communities.

According to Harvard’s Joint Center for Housing Studies, housing costs have been rising faster than incomes since 1960. In that time, rents have increased 61 percent while renters’ median earnings have gone up 5 percent; home prices have gone up 112 percent, while homeowners earn just 50 percent more. Innovative homeownership solutions aren’t a magic wand, but with more of them, we can help expand the pool of deserving borrowers who aspire to homeownership.

About Author: Jim Jumpe

As SVP and CMO of Arch MI, Jim Jumpe oversees a long-term strategy to steward the Arch MI brand, help drive sales through effective customer communication events, advertising and marketing collateral, and developing and executing innovative marketing strategies.

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