Who has access to homeownership?
Homeownership can transform lives. It creates long-lasting and life-changing impact on families and communities, from providing a source of wealth and asset-building to influencing health and educational outcomes and contributing to positive community development. The first step in bringing homeownership to more families, however, is to understand who currently has access to homeownership and what factors play a role.
Trends in homeownership rates
Since 1965, the U.S. homeownership rate has fluctuated from a low of 62.9% in 1965 to a high of 69.2% in 2004, landing at 65.3% in the first quarter of 2020. The 2019 Consumer Financial Literacy Survey shows that half of U.S. adults face barriers to homeownership (Figure 1). Several key barriers contribute to constraining access to homeownership, especially affordable homeownership.
What are the key barriers to accessing affordable homeownership?
The existing housing inventory does not meet current demand, particularly for lower-priced homes.
The demand for housing outstrips the current supply, especially at lower price tiers. In 2018, the U.S. Department of Housing and Urban Development estimated a need for 2.5 million additional housing units to meet long-term housing demand.
The rising costs of land, labor, and materials limit homebuilding and target most new construction at higher price points. Construction costs, fueled largely by labor shortages and material costs, have risen by more than 20% since 2004. In more than 80% of counties in the U.S., land values for residential construction have soared.
Sales of existing homes failed to fill the void, with 46% of for-sale inventory in the highest-priced tier of homes by value and only 23% in the bottom tier.
How Habitat responds
Habitat affiliates expand housing inventory in their communities that is affordable to low- and moderate-income households by building new homes and rehabilitating and repairing existing homes, providing much-needed affordable housing stock neglected by standard residential construction.
In some markets, Habitat affiliates offer permanent affordability strategies, such as shared-equity homeownership, in order to preserve the community’s affordable housing stock.
Habitat advocates at all levels of government for programs and policies that fund and stimulate new development and preservation of affordable housing.
Home prices have been increasing rapidly, especially for less expensive homes, and median household incomes have not kept pace.
Prices for more affordable homes (those affordable at 75% of the metro area median income and below) increased at nearly twice the rate of expensive homes (those affordable at 125% of metro AMI and above).
The rate of inflation of the median home price for existing single-family homes outpaced that of the median household income.
How Habitat responds
Habitat partners with volunteers and Habitat homeowners and relies on efficient building methods, modest house sizes, and nonprofit loans to keep costs low and make Habitat homes affordable for low- to moderate-income families.
As a rule, Habitat homes are priced at fair market value, which is the price of the home if it were sold under prevailing market conditions.
Habitat advocates for public policies on land acquisition, use and development to lower the cost of homebuilding.
Down payments, closing costs, and increases in mortgage interest rates can put the cost of purchasing a home out of reach for many U.S.households.
Down payment and closing costs can be 3% to 25% of the price of a home, putting homeownership out of reach for some households.
Lower down payments can be initially more affordable but increase monthly costs over the life of the mortgage.
Rising interest rates and the resulting increase in financing costs reduce the ability for potential buyers to qualify for mortgages that enable them to afford properties meeting their needs.
How Habitat responds
Habitat requires lower down payments, if any, and closing costs than standard lending practices, and these can often be paid through flexible payment arrangements.
Habitat offers low- or no-interest mortgages, making financing costs significantly lower than market rates, and helps rural families access affordable loan products like the U.S. Department of Agriculture’s 502 Direct Loan program.
Habitat advocates for policies that increase and broaden access to safe and sound credit for underserved populations and help close the homeownership gap for Black households and other communities of color.
Lending standards have been tightening since the Great Recession (2007-09), and strict credit standards prevent many potential homebuyers from purchasing a house.
The tightening of lending standards after the Great Recession was a key factor in declining homeownership rates, preventing potential homebuyers from obtaining mortgages. For low to -moderate-income homebuyers, the share of mortgage loan originations decreased by 25% in the years after the Great Recession.
How Habitat responds
Habitat is committed to selecting families based on four criteria: level of need, residing in the affiliate’s service area, willingness to partner with Habitat, and ability to repay an affordable mortgage.
Habitat’s lending standards and terms are less subject to market fluctuations, with more flexibility that reflects the lived experiences of its homeowners. This means Habitat may consider nontraditional inputs for establishing creditworthiness (e.g., rental history and utility bills), consistently serve families with lower credit histories, and in a few circumstances, work with families who lack a credit history to help them build one, creating opportunities for wealth building
The racial homeownership gap
The homeownership rates for Black and Hispanic/Latinx households continue to trail that of white households. As of the first quarter of 2020, the homeownership rate of white households exceeded that of Black and Hispanic/Latinx households by 25-30 percentage points. This gap has persisted even despite homeownership gains by Black and Hispanic/Latinx households before the Great Recession. In fact, the homeownership rate for Black households has yet to recover to its pre-recession levels, unlike those of white and Hispanic/Latinx households.
In addition to the key barriers faced by all potential homebuyers, racial and ethnic minorities confront other factors that constrain homeownership. Many of these factors are the result of historic structural barriers that racial and ethnic minorities faced over time that have compounded to produce these inequities
The Why Home Matters evidence series is a multi-part exploration of existing research on the impact of homeownership created by Habitat for Humanity International. Each evidence brief in the series investigates and presents evidence on outcomes related to affordable housing and homeownership while also highlighting specific ways that Habitat’s work contributes to improving outcomes for families and communities.