It’s the Economy, Stupid!

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To borrow a slight variation of a phrase used by James Carville, campaign strategist to President Bill Clinton, the economy is dictating what is happening in the housing markets and homeownership rates.

Recent studies by the Pew Research Center, a nonpartisan fact tank in Washington, DC, found that the American Dream of homeownership may be slipping away.

Today, we have more households renting than buying than we had in the past. In the 10 year period from 2006 to 2016, the percentage of renters jumped from 31.2% to 36.6%. A look at these numbers by generation reveals that:

• 65% of households of those under 35 rent
• In the 35 to 44 range, about 40% now rent
• 28% of those 45 to 64 are rent
• 20% of those 65 and older are renters. (This group stayed relatively the same.).

So, why do so many more people rent? It’s not because of mortgage rates or a lack of available mortgage financing. Pew’s research shows that 72% of renters wish to buy a home. That’s good news for lenders.

However, 65% say they rent as a matter of circumstance rather than choice. Financial challenge is cited as the biggest reason. They believe they just don’t have the money to buy a home.

The real reasons it’s harder to buy are:

1. Inventories are at an all-time low
2. Home prices keep rising
3. Regulations have tightened mortgage credit standards.

All are related to the economy. Low mortgage rates and new, innovative financing programs can help. But, as we’ve seen, these can’t do it alone.

To get more people into homes, we need a strong economy. An economy that offers better stability through more/better jobs, at decent wages with the opportunity for growth and advancement.

When consumers are comfortable that they are in a financial place to be able to afford and maintain a home, they will buy. Insecurity and uncertainty will keep them on the sidelines.

Unfortunately, until our elected officials in Washington, DC get their collective acts together, the ‘Dream’ may be in holding pattern for many who now rent. I guess that’s good for all those landlords out there.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.