Despite low interest rates and expanding credit availability, homeownership in the U.S. continues to fall, down to a low of 64.7%, a level not seen since 1995.

Among the key culprit is home affordability, which has been exacerbated by home price appreciation driven by investor and not owner-occupant sales and general wage stagnation.

“The fundamental causes of the decreasing homeownership trend are becoming more entrenched and are not expected to reverse anytime soon,” says Ron D’Vari, CEO, NewOak.

Further stressing the problem, first-time home purchasers are declining as a share of total home sales. 

Usually, first-time home buyers constitute one of the major drivers of the homeownership rate of change, but tougher mortgage underwriting standards, lower quality of new jobs and changing demographics are keeping them renting instead of buying.

“College graduates are not qualifying for new home purchases as many of them are burdened with student loan repayments as well as the higher down-payment requirements.  As a result, first-time homebuyers are failing the qualified mortgage/qualified residential mortgage and ability-to-repay rules,” D’vari says. “Unless home prices rise at a much slower pace and the U.S. economy produces more higher-paying jobs and regulators loosen up the mortgage lending rules, the downward trend in homeownership is unlikely to reverse course any time soon.”

However, there are a few good sights on the horizon.

Home price growth is slowing and is projected to slow further through the next 12 months.

Mortgage credit availability maintained its slight upward trajectory in July, increasing .5% from 115.8 in June to 116.4 in July, according to the Mortgage Credit Availability Index, a report from the Mortgage Bankers Association, which analyzes data from the AllRegs Market Clarity product.  

But that’s not enough to reverse the course of declining mortgage origination. Another problem is that mortgage rules imposed by the Consumer Finance Protection Bureau are driving down the number of loans banks are making, the Federal Reserve says.

This reflects a similar recent report from DBRS, which says that federal regulations, coupled with a general shift from refinance to purchase activities, have resulted in historically low volumes of mortgage loan originations and organic servicing growth, even though home prices have continued to rebound and delinquency and foreclosure rates are at their lowest levels in years.

Banks cited a 43% cap on debt-to-income ratios as part of the definition of QM and a provision of the ability-to-repay rule that requires mortgage originators to evaluate income and assess credit history, assets and debt payments as a reason for lower approval rates.