Helping Millennial and Minority Buyers Overcome Barriers to Homeownership
(This article was updated in June 2017 to reflect changes to the author’s bio)
Recent data from the U.S. Census Bureau shows a continuing slide in the national homeownership rate. According to the data, 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 addition, further analysis of the data by Harvard’s Joint Center for Housing Studies attributes the decline to a range of factors that have challenged household growth and formation and discouraged home purchases — including tighter credit standards, lingering unemployment, stagnating wages, and rising student loan debt.
Those factors seem especially challenging for young adults and minorities, as indicated by the Census Bureau data, conducted as part of the quarterly Housing Vacancy Survey of the Current Population Survey and reported on July 28.
Homeownership rates for those under age 35 fell 4.9 percentage points, from 39 percent in the second quarter of 2010 to 34.1 percent in the second quarter of 2016. At the same time, minority homeownership rates were affected differently during the same period. Homeownership for African American households fell 2.1 percentage points, and the decline for Latinos was 1.4 percent. For whites, the decline was 2 percentage points.
The differences in homeownership are even starker when you look at the homeownership rates for different groups as of the second quarter of 2016. Whites are at 71.5 percent, Asians are at 53.7 percent, Latinos are at 45.1 percent, and African-Americans are at 41.7 percent, as reported by the Census Bureau in the Housing Vacancy Survey. 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 formation in the coming decades, are trending younger. While the median age according to the Census Bureau’s 2015 American Community Survey of white Americans is 43, for Asians it’s 35, for African Americans 32, and for Latinos 29.
These younger populations may only now be entering their home-buying years.
There’s also an income gap. In 2015, average hourly wages for African American and Hispanic men were $15 and $14, respectively, compared with $21 for white men. Only the hourly earnings of Asian men ($24) outpaced those of white men, according to the Pew Research Center.
Despite this mismatch, Fannie Mae research finds a continuing desire for homeownership among young renters. This includes “Millennials,” defined as those between the ages of 18 and 34, a demographic larger and more diverse than any previous generation.
The July National Housing Survey® report, conducted by Fannie Mae’s Economic and Strategic Research (ESR) group, shows interest in owning a home has grown. 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 today mean that the mortgage industry faces a significant challenge in meeting the needs of American consumers.
At Fannie Mae, we are committed to meeting 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 tells 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 — as much as 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 those living in 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 “I do not know” when asked what the minimum down payment is. Similarly, 47 percent of African Americans and 48 percent of Latinos answered “I do not know.”
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 so 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 was formerly Fannie Mae’s senior vice president for credit and housing access. She is currently the president and CEO of the Housing Partnership Equity Trust in Washington, D.C.
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.