We Must Do More: Addressing The Shifting Tides of Homelessness, Rental Housing and Homeownership.

This contribution is from guest bloggers and industry thought leaders Faith Schwartz, Founder & CEO, Housing Finance Strategies and Stuart Quinn, Managing Director, Housing Finance Strategies. Learn more at HousingFinanceStrategies.com. 

Congratulations to co-founders Marrisa Yaker, and Cade Holleman, for founding the American Institute of Servicing and Legal Executives (AISLE).  Your focus in spreading the word on new regulations and developing solutions for the many challenges facing lenders, loan servicers and consumers, will continue to assist in decoding the complexities of housing finance.    

Our housing and mortgage industry must do more to ensure access to safe and affordable shelter for all.  To do this, we need to have a 360-degree view of the lifecycle of housing to charter a path toward accessible credit, for resilient and sustainable housing for all.  

First time homebuyer:  For many of us, the tradition of leaving your childhood home, renting an apartment, and eventually, purchasing a home is a common path to homeownership.  I was fortunate enough to buy my first home in my 20’s.  At the time, it seemed like an expensive proposition.  But I was encouraged to do so by my bosses to help me get established.  My first townhome was purchased in 1986, for $140,000 in Fairfax VA.   The reasonable debt to income (DTI) had me well within conventional guidelines as I secured my 7/23 ballon-a FNMA product with a rate of 7 3/8 %.  And this began my path towards building wealth and my future downpayment of a home when I married.

We have been through many housing cycles since then, including the late stages of the savings and loan crisis, the dot-com bubble and the “Great Financial Crisis of 2008”.  The Great Recession was preceded by easy money, loose programs, and lax risk management in mortgage lending.  We experienced massive nationwide housing depreciation, infecting all lending and home price values.  For several years afterward, in the post Dodd-Frank era, we slowly rebuilt systems, with a focus on technology, risk management, increased regulation and a tightening of credit.  These factors along with nationwide home prices bottoming in 2012 stabilized housing over time.

The pandemic created an unusual marketplace amidst an already undersupplied housing market.  With an extraordinary low-rate environment, there was a gift to homeowners who accessed the low-rate environment to refinance their homes thus protecting their balance sheets to sustain the pandemic.  With record numbers of homeowners refinancing in a 2-3% market environment, little did we know we would re-write housing as we knew it.  There were few loans to refinance after 2019-21 and rates snapped upwards as inflation accelerated, with mortgage rates reaching levels not seen in recent decades.  This flipped housing upside down and created an environment where the purchase of a home became out of reach for the average buyer.   

The global pandemic had an outsized impact on homeownership and rental housing.  There were more refinances of existing loans than recorded in history given the record low-rate environment.  Under COVID 19 protocols, the world adjusted to remote work where white-collar employment remained steady and productive but the service economy and ancillary services were devastated.  Despite the federal government support in many areas, the post pandemic challenges remain significant. The supply chains and building of homes were delayed, inflation remains stubbornly high (particularly for housing) and many existing homeowners have been disincentivized from listing their properties to make step-up purchases. This is due to their mortgage rates being below current market rates further reducing the available supply of for-sale homes.  

Rental Markets:  There has been a great focus on building more multi-family units and the increased supply started to cool asking rental prices for certain markets at the end of 2023. Throughout the pandemic, builders continued to permit and begin new projects, but were stymied by supply bottlenecks for raw materials and the overall timelines with starts to completions swelling to 17 months in 2022. Delays and continued intent to build has created a historic number of multi-family units under construction (future supply), peaking at over 1 million five-plus unit buildings last summer. Final delivery of existing projects underway continue and are expected to alleviate some of the affordability pressures for renters aspiring to be future first-time homebuyers. 

​The current state of housing in the post-pandemic carries residual overhangs left from the pandemic, combined with high interest rates and strong undercurrents of demographic shifts. A key set of highlights and challenges going forward include: ​​

• Record home equity of $32 trillion dollars for existing homeowners who have been beneficiaries of significant home price appreciation. 
• Historically low mortgage delinquency rates and a robust toolkit of loss mitigation options refined for post-pandemic use.
• Housing stock supply deficits estimated between 1.5 to 5.5 million units. 
• Stubbornness in persistent homeownership gaps for communities of color.
• Delays in homeownership attainment age. As measured by the median age of first-time homebuyers this has moved from 29 in 1981 to 36 and 35 in 2022 and 2023 respectively. 
• A shrinking stock of available low-rent units resulting in a historically high level of moderately and severely cost-burdened households. 
• Increases in unsheltered homelessness. 

What can we do to improve the current state of play for housing and shelter?
Update Government programs to reflect the current state of housing, offering more program and product innovation and use of emerging technology.  Private industry, stakeholders and government agency markets should continue to make strides leveraging source data and emerging technology to drive change in housing access. Regulators should pay close attention to innovation and rules that create a “sandbox” for the rules of the road moving forward.  And public policy will continue to have a role in driving the percentage shifts in homeownership, rental homes and addressing the chronic challenges for those unsheltered across the country.

We know the demand exists for affordable access to credit and housing.  By improving our processes and programs, we can scale into solutions to drive improved ownership metrics. Examples of technological innovation on the supply side may include leveraging new technologies like 3D printing and other prefabrication to produce faster time to market. Continued efforts to evaluate and scale effective localized changes more broadly for ADU and manufactured housing policies for development of smaller homes will also continue to drive affordability for the first time homebuyer (FTHB). 
Much shared effort and partnership were cornerstones to the pandemic response in housing to deliver new options for distressed renters and borrowers alike, a similar renewed focus and partnership should be made towards safe and creative financing solutions on the front-end, such as shared equity down payment assistance and new financing alternatives with consumer safeguards and choice to leverage new programs. Despite a period of surging refinances, overall costs to originate remained stubbornly high, re-evaluation of redundant processes and leveraging source data, utility like consortiums for tech and data, holds the potential to drive and democratize credit.  Driving these types of changes should be key aspirations for all housing market participants to forge a broader and better path forward.