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By Marietta Rodriguez
Director, National
Homeownership
Programs & Lending |
A new wrinkle was added to the housing affordability debate recently with the news coverage in The Wall Street Journal of a paper by Andrew Davidson & Co. The paper and the article published in the Developments
blog at The Wall Street Journal, suggests that housing affordability today is not better than it was in 2006, the peak of the mortgage bubble.
We couldn’t disagree more.
At NeighborWorks America, and throughout the NeighborWorks network, affordability simply means how much of a homeowner’s current income has to go each month toward the payment on a safe, sustainable mortgage. Under that definition, the cost of mortgage finance is as low as it has ever been.
30 year fixed mortgages are at historically low rates. This, combined with a broad-based decline in home prices, means housing affordability is significantly better than it was back in the go-go 2000s. Nominal and real household income are down from the middle part of the 2000s, but not so much to negate the affordability benefits of very low mortgage rates and lower home prices.
What is affecting the ability of the housing market to recover fully is not a question of affordability, but of credit accessibility, and here Mr. Davidson gets it right. His research finds that because homeowners today need larger down payments to be approved for a mortgage, the all-in cost of homeownership has increased. NeighborWorks America won’t argue with that; higher down payments do mean that it costs more and that it is harder to become a homeowner. We just think that the higher down payments costs are an unnecessary barrier to homeownership.
NeighborWorks America has been helping its network of nonprofits make homeownership accessible to people with very little down payment, but who still are good candidates for homeownership. NeighborWorks America and NeighborWorks organizations couple support for low down payment mortgages with homebuyer education. Homebuyer education significantly helps to reduce default, by providing prospective homebuyers with the information they need to avoid the toxic mortgages that proliferated in the 2000s and advice on purchasing a home that they could afford the moment that they close on the sale, instead of hoping some time down the road that a refinancing will lower the payment to more affordable levels.
Since we have seen even homes with higher down payments go into foreclosure in recent years, we know that equity -- while an important driver of default -- is not the only driver. Lenders need to more aggressively and more broadly consider the value of pre-purchase homebuyer education when evaluating a borrower. Such education mitigates default and improves homebuyer accessibility, which in today’s low rate market, also means improved homebuyer affordability.
