Homeownership Near 13-Year Low as Mortgage Rules Crimp Sales
The U.S. homeownership rate in the third quarter was at the second-lowest level in 13 years as borrowers were evicted after foreclosures and the tightest mortgage standards in more than a decade thwarted new buyers.
The ownership rate was 66.3 percent, up from the 13-year low of 65.9 percent in the prior quarter, the U.S. Census Bureau said in a report today. It was the only gain in two years. The vacancy rate, measuring empty properties for sale, was 2.4 percent, compared with 2.5 percent in the second quarter, according to the report.
Stricter lending rules and concerns that prices will fall further are keeping some Americans from taking advantage of a 28 percent decline in home values since 2006, according to Richard DeKaser, deputy chief economist at the Parthenon Group, a Boston-based financial consulting firm. Mortgage financiers Fannie Mae and Freddie Mac are increasing fees that banks pass on to borrowers. That’s preventing some people from taking advantage of the low prices, he said.
“People view it as a good time to buy, but there’s a risk aversion on the part of buyers and lenders,” DeKaser said. “The fact that millions of people are losing their equity and their homes isn’t helping that.”
The ownership rate may decline next year as foreclosures turn into evictions. In December, the U.S. foreclosure rate rose to a record high, as measured by the Mortgage Bankers Association. Those cases may not come to a conclusion until next year. The average time between the first late payment and a repossession is 20 months, according to Lender Processing Services Inc. in Jacksonville, Florida.
Fannie Mae and Freddie Mac in April increased so-called risk premiums it charges lenders to guarantee most mortgages, assessed on top of its standard fees. For a borrower with a 698 credit score and a down payment of 20 percent on a $300,000 mortgage, the additional charges add more than $5,000 to the loan balance.
In addition, Fannie Mae charges an “adverse market” fee that adds $750 to the same-sized mortgage, according to its lender guidelines. Freddie Mac has similar charges. The fee applies even to borrowers who have FICO credit scores above 800, in a rating formula that ranges from 300 to 850. About 28 percent of Americans have scores from 650 to 750, and 38 percent have scores above 750, according to Minneapolis-based Fair Isaac Corp., developer of the FICO system.
Freddie Mac, based in McLean, Virginia, and its larger rival, Washington-based Fannie Mae, were seized by federal regulators in 2008 amid the mortgage-market collapse. Since then, the companies, responsible for about two thirds of new home loans, have survived with a federal lifeline of more than $170 billion.
The homeownership rate rose to a record 69.2 percent in 2004 when President George W. Bush, running for re-election, called for expanding home-loan availability to create an “ownership society.” The rate in the third quarter was almost 3 percentage points below that peak.
There were 18.8 million vacant homes in the third quarter, including foreclosures, residences for sale and vacation homes, compared with 18.9 million a year earlier, according to today’s Census Bureau report from Washington. About 1.9 million of those empty homes were for sale, almost matching the number a year ago, according to the report.
That may mean more than half of the 3.5 million homes on the market in September were vacant, though the group that reports inventory, the National Association of Realtors, doesn’t track properties sold without a broker. When banks get rid of repossessed homes, they often sell directly to investors, without using a real estate agent.
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