While some experts warn that the homeownership rate will continue to decrease, Freddie Mac claims that view is overly pessimistic.
The homeownership rate declined consistently over the past decade, according to Freddie Mac’s October Insight.
Experts from the Joint Center on Housing Studies and the Urban Institute say the rate will continue to fall even below 60%.
Freddie Mac doesn’t agree.
“Twenty years in the future, today's Millennial 35-year-olds will not act exactly like today's Baby Boomer 55-year-olds,” Freddie Mac Chief Economist Sean Becketti said. “Or perhaps they will.”
“And this is where experts from the Joint Center on Housing Studies and the Urban Institute begin to part ways in their projections of the homeownership rate,” Becketti said. “Both approaches project future homeownership rates by, in essence, applying some fancy arithmetic to current conditions.”
“These approaches do not, nor do they claim to, incorporate future macroeconomic disruptions, significant policy changes, or shifts in social attitudes in their calculations,” he continued. “These types of influences ultimately will determine how accurate or off-target their projections are.”
Freddie Mac names three macroeconomic influences that could arise and significantly impact the homeownership rate:
- First, the future of housing finance has yet to be sorted out. The GSEs are in their eighth year of conservatorship, a tenure that was not foreseen by anyone when they entered conservatorship in September 2008.
- Second, Millennials may finally commence to marry, start families, and buy homes at the faster pace posted by previous generations.
- Third, the factors accounting for the lower homeownership rates of non-white demographic groups may be overcome.
“In either case, we believe their projections may be overly pessimistic,” Becketti said. “The income and education gaps that are responsible for some of the differences may be narrowed or eliminated as the U.S. becomes a 'majority minority' country.”
“And as these types of potential homebuyers comprise a larger and larger share of the population, it will become increasingly expensive to overlook them,” he said. “Profit-oriented financial institutions will be motivated to find better ways to serve them.”
And Freddie Mac isn’t the only one who thinks homeownership rates will improve. NeighborWorks America, which creates opportunities for people to live in affordable homes, improve their lives and strengthen their communities, also weighs in on why it will continue to improve.
“First, broader knowledge of down payment assistance programs will help bridge the debt-to-income ratio problem when qualifying for a mortgage,” the company stated in an email to HousingWire.
They also said that gradual and steady improvements in credit scores, with a return to more rational underwriting criteria will enable more minorities, which the company says is the engine of homeownership rate growth, to safely qualify and become long term homeowners.