Though foreclosure and delinquency rates continue to fall, the national homeownership rate fell more than 5 percentage points in 2015 from its peak in 2004, according to a report from Fannie Mae. This decline has been primarily attributed to affordability.
“There’s still a long way to go and there are still many remaining, persistent challenges that are facing many households,” stated Daniel McCue, senior research associate at Harvard’s Joint Center for Housing Studies.
Due to continued home price appreciation, homeowners are paying larger shares of their income on housing. Even more so, the number of homeowners and renters classified as severely “cost-burdened” or those paying more than 50 percent of their income on housing is estimated to increase 11 percent by 2025. according to Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners Inc.
“There’s a mismatch between income and cost, literally,” said Anne McCulloch, Fannie Mae’s senior vice president for credit and housing access. “Household incomes have not kept pace with the cost of housing — period.”
Fannie Mae states that the main driver for the increase in cost-burdened households came from the rental market. The share of cost-burdened renters surged to the highest level it has been compared to any other time in U.S. history.
While the number of “severely” cost-burdened renters and homeowners is rising, the number of cost-burdened homeowners (spending at least 30 percent of income on housing) has fallen steadily. Low interest rates may be helping owners lower their housing costs, Fannie Mae’s report states. However, other reasons for the decrease in cost-burdened homeowners could be bad news for the market. Fannie Mae speculates some may have already lost their homes or other prospective buyers are refraining from entering the market all together.
McCulloch feels there is disparity between the production of housing and overall consumer demand. The U.S. Department of Commerce reported on June 23 that the new home supply was 5.3 months in May, placing it below the six months that many economists describe as a healthy inventory, according to Fannie Mae.
McCulloch also attributes further exacerbating of affordability to single family housing stock being transitioned into rental housing making them not available for homeownership.
While home prices are increasing, real incomes are finally on the rise after years of decline with the strongest growth being found among adults, ages 25 to 34. Additionally, Fannie Mae says historically low mortgage rates have been an important factor in supporting affordability.
“At this point, we have the combination of rising home prices and [low] mortgage interest rates. That has helped homes become more affordable than they would be based on rising prices alone,” states McCue.