Owning a home is so important to Americans that it just takes one word to express it: Homeownership. This article presents four mortgage market trends and accompanying opportunities for credit unions.
Mortgage market trend 1: Despite the fallout from the mortgage crash, many Americans remain interested in homeownership as an investment. According to 2011 data from the Pew Research Center, 8 in 10 adults believe that buying a home is “the best long-term investment a person can make.” A study in 2013 by Harvard University found that “attitudes toward buying a home have rebounded at a remarkably fast pace. Even after the dramatic loss of equity and the high foreclosure rates, early evidence suggests that people seem to believe that, over the long run, owning is still preferable to renting, at least when it comes to the financial benefits of homeownership.”
Recent Consumer Financial Protection Bureau research has indicated that homebuyers need significant help evaluating their options, and the “mortgage process continues to be intimidating,” with 50 percent of homeowners not knowing how to effectively compare options.
Opportunity 1: A credit union can create a positive image of itself in its marketplace by educating members on homeownership, whether or not the CU originates mortgages.
Mortgage market trend 2: A recent challenge for homeowners has been the depression of home prices to a level below what they paid for their home. The number of homeowners affected by negative equity, that is, those who owe more on their mortgages than their home is worth, currently amounts to about 10.7 percent of all residential properties with a mortgage. This is down from 12.7 percent in early 2014, according to data from CoreLogic.
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However, the rates of negative equity are unevenly distributed between the high end and low end of the market, according to CoreLogic’s study. For homes valued at more than $200,000, 94 percent have positive equity, but below $200,000, only 84 percent of homes have positive equity. It should be noted that an additional 19 percent of homeowners over all categories have less than 20 percent equity, making it more difficult for them to refinance or sell and buy another home.
Opportunity 2: Credit unions can create significant value for their home-owning members by including equity considerations in the picture they give of refinancing. They can expand the discussion of mortgages beyond monthly payment and into how equity is built through various loan products and how paying down principal affects total costs. Because of the complexity in mortgage products and offers, the tendency has been to focus on simple concepts like monthly payment and interest rate. While these are important, a homeowner will make much sounder decisions about wealth building through real estate by understanding the trade-offs between cost and equity building. Giving members the ability to maximize their home as an asset can have a huge impact on a homeowner’s future financial situation.
Credit unions can help members with negative equity understand their position better. For example, credit unions can help their members visualize where they are in the life of their mortgage, and at what point they might have positive equity. This clarity alone can help members to be in a position to make adjustments and decisions to improve their financial situation.
Mortgage market trend 3: Well over half of all U.S. consumers own homes, and the number of homes owned by young people is expected to increase.
According to data from the Census Bureau 2014 Housing Vacancies and Homeownership report, the U.S. homeownership rate is 64.6 percent. To put this in context, the highest level of homeownership was just before the housing crash in 2006, at 69 percent. The current rate is similar to the three decades leading up to 1995. In 1995, rates slowly crept up to their high in 2006.
When we break down homeownership by age, we find the current rate of homeownership for people under 35 is 36.2 percent, down from a high of 43.1 percent in 2005, and similar to the rate of 36.8 percent in 1994.
According to Pew Center research, 27 percent of the U.S. population are considered to be Millennials, 27 percent Gen X, and 32 percent Baby Boomers. The average age of the first-time homebuyer is 31, according to the National Association of Realtors 2014 Profile of Home Buyers and Sellers, whereas the average age of the repeat buyer is 53 years old. Today there are 13.3 million households headed by Millennials, and this is expected to increase to 24 million new households in the next decade.
Opportunity 3: Credit unions that originate mortgages can benefit from marketing to younger, salaried members who will be first-time homebuyers, and who can qualify for a mortgage under the current qualification standards that require good credit scores and consistent employment. Even for credit unions that don’t originate mortgages, these younger, qualified potential homebuyers can benefit from a mortgage education that includes a focus on their long-term financial well-being.
Mortgage market trend 4: Young adults ages 18 to 33 are the most racially diverse generation in U.S. history. Fifty-seven percent of Millennials are non-Hispanic white, as opposed to 72 percent of Baby Boomers, according to this Pew report. Future homeowners will be significantly more diverse than in the past. Realtors who are serving potential homebuyers do not match this profile. Of the million U.S. Realtors serving potential homebuyers, just 6 percent are Hispanic, 4 percent black and 4 percent Asian, according to the National Association of Realtors. Eighty-five percent are white and 72 percent are over the age of 50, according to the Realtor trade group. There is no industry data available from the Nationwide Multistate Licensing System on the racial breakdown of mortgage professionals.
Opportunity 4: Given the increasing diversity of Millennials among homebuyers and non-homebuyers alike, credit unions can benefit from having a workforce that can understand, respond to, and attract an increasingly diverse member base.
The residential real estate market is constantly changing and dynamic. Change can be painful for some, but for others it represents great opportunity to capture new business. The current residential real estate environment provides vast opportunities for credit unions to add value to their members around homeownership, given their unique place as pro-consumer entities.
Nicole Hamilton is the CEO of Tactile Finance, which sells solutions that let professionals provide optimal consumer real estate outcomes to their clients.