Dec 11, 2018 Walt Wojciechowski
By most accounts, homeownership is a status that a substantial portion of Americans aspire to, given the creature comforts that it offers in comparison to renting, not to mention the added privacy. However, due to a combination of factors, the percentage of Americans who are homeowners isn't as high as it used to be.
How can the trend be reversed? Alternative credit may be able to help, providing greater insight for lenders to make smarter decisions regarding borrowers' creditworthiness.
"Homeownership in the U.S. has fallen to less than 63% from 69% in 2004."
According to the most recent data available from the Census Bureau, the homeownership rate in the U.S. presently stands at 63.7 percent. While this is up approximately 1 percent from this time last year - 62.9 percent in 2016's second quarter - it remains well shy of the homeownership rate reached in 2004, when it peaked at 69.1 percent.
Decline in homeownership is a multifaceted issue
The drop in homeownership can't be chalked up to a single cause but rather several reasons. For instance, asking prices are considerable, with the current nationwide median among existing homes at approximately $253,000, according to estimates from the National Association of Realtors. That's an increase of 5.6 percent from the same time in 2016 and the 66th consecutive instance that the median has risen on a year-over-year basis.
Limited inventory has also played a contributing role. In August, the most recent month for which data is available, there were 1.8 million existing homes up for sale, based on the NAR's calculations. That's down 6.5 percent from the same period last year and the 27th consecutive month residential real estate inventory has slipped.
Tighter mortgage lending rules have fueled the declining homeownership rate as well. In a bid to avoid another housing crisis, which many economists point to as a contributing reason for the recession, lenders have implemented stiffer standards that borrowers must satisfy to provide assurances about their financial stability. The only problem with this is the credit data lenders use to make decisions on mortgage applications is incomplete.
Alternative credit data taken up on Capitol Hill
This is part of the reason why lawmakers are considering a bill that would expand consumers access to the capital they need to purchase homes, made possible by requiring the Federal Housing and Finance Administration to use alternative credit data when determining whose requests should be approved.
Presently, lending institutions typically only use the data considered by FICO to establish credit scores, such as payment history, debt, new lines of credit and the length of time that borrowers have a credit track record. But with alternative credit data at lenders' disposal, millions of Americans who were previously credit invisible will have a paper trail. Utility payments, cable and phone bills are among the financials that fall under the alternative credit umbrella.
"The Credit Score Competition Act has the potential to make 7.6 million more consumers homeowners."
The Credit Score Competition Act, as the bill is known on Capitol Hill, has the potential to make homeownership a reality for 7.6 million consumers, according to VantageScore Solutions, by expanding mortgage access and credit identity.
"The business case for allowing lenders to use updated and more inclusive credit scoring models is perhaps only matched by the impact on the many credit-worthy households that are currently all but invisible to mortgage lenders," said Mike Trapanese, senior vice president at VantageScore. "As the demographic make-up of homebuyers evolves it's critical that the current system effectively provides access to sustainable homeownership for all credit-worthy borrowers."
Jim Carr, a banking and urban policy expert, added the use of alternative credit has the potential to make homeownership more realistic for those who seek to buy, improving the economy in the process.
Microbilt can serve as the bridge between lenders and would-be buyers, establishing the outlet through which credit decisions can be made in a smart, well-informed manner. Here are more details on how we help take the risk out of risk management.