Analysis by LendingTree reveals that while the housing market has mostly recovered since the Great Recession, the homeownership rate in the U.S. is still lower than its pre-crisis level.
The homeownership rate in the U.S. was 64.8%, which is 2 percentage points lower than it was to start the decade and more than 4 percentage points below pre-crisis levels.
Mortgage delinquency rates fell to 2.45% in 2019, which is a far cry from the 11.5% recorded in 2010.
Homeowners spent 4.1% of their annual incomes on mortgage payments—the lowest percentage since the Fed began tracking data in 1980.
The piece’s author, Tendayi Kapfidze, Chief Economist at LendingTree, says it is the Fed to thank for the low-interest rates homeowners have experienced over the past decade.
Kapfidze says the Fed’s holdings of mortgage securities rose from $909 billion in 2010 to $1.4 trillion by the end of 2019. The 30-year fixed-rate mortgage was 5.09% in 2010 but has fallen consistently through the decade to 3.74% to end 2019.
Among the reasons for improved performance on loans has been a “significant tightening” in lending standards, Kapfidze said.
“Before the housing downturn, there was a significant innovation in mortgage loan types, many of which proved to be poorly designed when home values fell and the labor market weakened,” he said. “Subprime loans, in particular, are no longer as prevalent, and subprime borrowers received just 8% of all mortgages in the third quarter of 2019, down from 20% prior to the crisis.”
He added that mortgage credit has moved more readily to borrowers with higher credit scores. Borrowers with credit of 760 or higher now receive 61% of mortgages, which is up from 28% before the Great Recession.
Although many of the nation’s markets have recovered, insight from CNBC warns that the next downturn may happen sooner than many think.
Research from the MIT Sloan School of Management and State Street Associates found that there is a 70% chance a recession will hit in the next six months.
The researchers created an index comprised of four factors and then used the Mahalanobis distance—a measure used to analyze human skulls—to determine how current market conditions compared to prior recessions.
“The Mahalanobis distance was originally conceived to measure the statistical similarity of the values of a set of dimensions for a given skull to the average values of those dimensions for a chosen group of skulls,” the researchers said.
CNBC states that looking back at data to 1916, researches say that the index was a reliable recession indicator since it rose leading up to every recession. When the index topped 70% the likelihood of a recession in the next six months rose to 70%.
The reading on the index was 76%, as of November 2019.