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Why responsible homeownership is important to the economy02/01/2012
While several reports show modest improvements to the real estate sector, a segment that consistently shows strength is the rental market. A host of surveys demonstrate that rental rates have risen while vacancies have diminished across the country.
But in order for the housing industry to mount a sustained recovery, responsible homeownership must be its cornerstone. Several housing experts and real estate organizations convey this belief, most notably the National Association of Realtors.
"For the first time in generations, the American dream of homeownership is being threatened," Ron Phipps, president of NAR, said at the 2011 Realtors Conference and Expo held in November. "We need to keep housing first on the nation’s public policy agenda, because housing and homeownership issues affect all Americans."
In addition to an increased prevalence of consumers opting to rent rather than buy, overall restrictive lending practices and tight credit conditions make homeownership more difficult to achieve. Specifically, rigorous lending standards may help explain the surge in rental properties.
Many say recently proposed mortgage regulations, designed to reduce the risk of another financial crisis, also go too far in restricting access to credit for those looking to buy a home.
Rules proposed by federal regulators as part of the Dodd-Frank Act would require borrowers to make a 20% down payment and meet onerous debt-to-income ratio standards and other stringent qualifications in order to qualify for the lowest mortgage rates. However, a study from the Center for Responsible Lending says the rules would severely restrict the availability of home loans with little change in default rates.
If a family saved $250 every month, it would take them roughly 13.8 years to save up the 20% down payment and 5% in closing costs required for a $165,100 home - which NAR reported as the median price of an existing single-family home in December 2011.
However, after saving for the down payment and closing costs, the cost of owning a home could continue to be more difficult to afford. Lawmakers did not renew the tax break that ended on January 1, 2012, which allowed consumers to deduct the amount they paid for mortgage insurance.
"If the real estate sector is going to return to its healthy state, it's in everyone's best interest to defend homeownership by making it easier to achieve. Studies reveal that the financial advantages of homeownership far outweigh the benefits of renting, but it also fosters civic pride, enhances personal happiness and reduces crime," researcher Ken Johnson of Florida International University said at an NAR-sponsored event.
With home prices, mortgage rates and closing costs affordable as ever, promoting responsible homeownership can get the country's economy back on its feet.