In the month of June, where we celebrate homeownership, we thank the Biden administration for their recently-announced Housing Plan and its tenets to ease the burdens of housing costs. We specifically recognize and thank HUD Secretary Marcia Fudge for her leadership and the Department’s focus on affordable housing and agree with her that homeownership is “the principal source of wealth creation for most American households.”
These steps combined with FHFA’s recent announcement on Equitable Housing Plans for Fannie Mae and Freddie Mac have rightly placed an administration-wide focus on homeownership, and have put wind in our collective industry sails to make our mark on moving the needle on the homeownership gap.
Yet, for those who know me, and my firm Housing Finance Strategies, you will not be surprised that I want more. We support 100% of the Biden team’s work on affordable housing and homeownership but we have been following a trend that deserves attention and as appropriate, the attention of policymakers.
The trend we address in this short narrative is the shrinking playing field for first-time homebuyers who are more and more being shut out of buying opportunities by institutional cash buyers and losing the attendant opportunity for the creation of generational wealth. Just as the Biden Housing Plan seeks to: “Direct supply to owner-occupants and mission-driven entities instead of large investors,” we suggest the need for policy review across the agencies to align the first-time home buyer (FTHB) candidate opportunity with market forces that have innovated new analytical purchase tools for the benefit of institutional investors. While we have no qualms about market forces and the ability for any buyer to be at the table, we certainly desire policies and programs that allow the FTHB to compete with any institutional buyer as an attractive option to the seller and real estate agent.
It is becoming clearer that we need a federal policy review to re-establish and ensure a level playing field can exist for the everyday, first-time homebuyer. The home purchase market has changed dramatically as modeling, data and analytics are being used by institutional investors to purchase residential real estate from 100s of miles away. And to those who say the uptick in rates will slow this one-sided market innovation, we encourage you to review Freddie Mac data published earlier this month by Deputy Economist Len Kiefer who tweeted: “There are now 18% more people between the ages of 25 and 34 than in 2006. That is 6.6 million more potential first-time homebuyers, from 39.5 million in 2006 to 46.1 million today.”
That pending force of ‘should be’ first-time homebuyers is at risk today of a more limited supply of homes for sale and eligible for purchase because in many instances federal policies hold potential first-time homebuyers back when they cannot compete with cash offers. And again to those who say market forces will normalize this impact, we point you to the recently released Black Knight Mortgage Monitor report which finds: “In total, mortgage holders gained $2.8 trillion in tappable equity over the past 12 months – a 34% increase that equates to more than $207,000 in equity available per borrower.”
For mortgage holders who gained $207,000 in equity last year, that positions their family to move forward, help dependents buy a home of their own, pay for college, afford medical bills and retirement. The list goes on as to the benefits of homeownership. Certainly the pandemic-fueled home price boom will level off, but the principle of homeownership as a wealth creation tool over time is the same.
And unfortunately the impact of a shrinking FTHB opportunity disproportionately impacts borrowers of color. This egregious effect is limiting success for the Biden administration’s plans to address the inequities of homeownership and the widening gap of minority homeownership.
One solution to addressing the inequities of today’s home purchase market comes from Shaival Shah, co-founder & CEO of Ribbon Home. In a recent interview with Jason Hartman, Shah recalled his family’s immigration to America from India, the discrimination they faced in seeking homeownership and his mission to “make homeownership more achievable by up-leveling mortgage-eligible consumers into an all-cash offer with a guaranteed close.”
Shaival’s personal story represents so many of the same issues impacting borrowers of color today. And his commitment to address the challenge is worthy of policymaker consideration as federal agencies seek to keep up with market innovation that to-date has left out a wide swath of FTHB candidates. For Ribbon and like-minded innovators in this space, the government can modernize its policies to the home purchase process by giving FTHBs, without access to savings or family wealth to offer a cash purchase, an ability to compete and win. By supporting entry level buyers and placing them in a position to successfully compete, the government can ensure the next generation of FTHB candidates is not lost to fewer choices and a greater reliance on rentals purchased out from under them by institutional investors.
We like this concept because it reopens competition and it does so in a manner consistent with today’s existing marketplace. Shah says: “We strongly believe agents and lenders in the ecosystem are essential advocates for everyday consumers. They know their communities best. That’s why we work with, not against, the real estate ecosystem to give everyday people an upper hand against Wall Street and iBuyers.”
Mortgage modernization has been a constant mantra at Housing Finance Strategies. Similarly, we have put the consumer at the center of our work. Whether it is “tokened’ bank statements, 3D scanned home valuations or cash buying programs for FTHBs, we continue to look forward and seek those opportunities that modernize and level the playing field so that a generation of would-be homebuyers are not shut out.
And as home sellers rightly seek the best possible terms to maximize their sales, we could be witnessing a changing landscape where a larger percentage of home sales go to cash buyers. As this market opportunity proliferates, and sellers seek out quick, guaranteed home sales, federal policy makers should take notice and begin to self-assess how to address this looming inequity.
Count on us to stand ready to support a meaningful public policy dialogue. As we study the opportunities for federal policy to foster safe and sustainable owner-occupied homeownership, we intend to share our recommendations for policy clarification and/or development as necessary to ensure we make June a Homeownership month for all.
*Housing Finance Strategies provides advisory services to companies such as Ribbon Home.