Magazine article Mortgage Banking

What's Normal about a $2 Trillion Market?

Magazine article Mortgage Banking

What's Normal about a $2 Trillion Market?

Article excerpt

HOME: MORE THAN JUST A DESTINAtion at the end of the day. The true meaning of the American dream has significance for every individual who has purchased a house. I still remember the day my wife and I stepped through the doorway of our first home. We were excited and nervous. A sense of pride made us feel that we had truly made it. As homeowners, we felt that we could raise a family in a stable environment. Our home also represented opportunity--we were investing in our future and that of our children.

Each year, many Americans fulfill their dream of homeownership. The purchase of this tangible asset evokes various intangibles--emotions that make the housing industry one of the pillars of our nation. Woven into the moral fiber of this country are communities of homeowners who seek the same ideals: family, friendship, safety and freedom.

More than ever before, people are regarding their homes as a measure of financial security. With a depressed stock market, rising gasoline and energy prices, and the threat of inflation, many consumers take comfort in the fact that their homes are appreciating faster than their mutual funds. After all, homebuyers have provided the most support to U.S. economic growth. According to the Mortgage Bankers Association (MBA), residential investment has "increased 9 percent in constant dollars during the past four quarters and housing starts are at levels not seen since the middle years of the 1970s, when rates of household formation were boosted by baby boomers reaching home-buying age."

Referred to as the "new gold," Americans have turned to residential real estate to increase their wealth. While it is true that home investments can be just as susceptible to market forces as stocks, the value of homeownership has been steadily increasing with no foreseeable plummet in prices. According to the National Association of Realtors (NAR), Washington, D.C., there has not been a nationwide decline in home values since the Great Depression.

And the rate of homeownership is also on the rise. The U.S. Census Bureau reports that rental vacancy rates are at the highest level in 40 years. Many of those who do not own homes see the opportunity to improve their financial situation, but they need someone to open the door to ownership. Center Pieces--Working families with Children: A Closer Look at Homeownership Trends, a May study conducted by the Center for Housing Policy, Washington, D.C. (the research affiliate of the National Housing Conference), shines the light on this desire. The study finds that low- and moderate-income working families with children--defined as households earning less than 120 percent of the local median income but more than the equivalent minimum wage--have the most difficult time becoming homeowners.


These families often consist of people who provide vital services to our communities, such as police officers, firefighters and teachers. Of greater concern are the findings from the Center for Housing Policy's report that show "children who live in owner-occupied housing are more likely to do well in school and are less likely to have behavioral problems." The lag in homeownership can be attributed to more single-parent households, the rising cost of homes and the gap between the increase in minimum wage and the cost of owning a home beyond the mortgage payment, including utilities, homeowners' insurance and property taxes.

This brings me to our present market. Industry experts keep referring to it as a "normal" purchase environment. What they do not do is define what this means. Some economists and housing analysts foresee the housing bubble bursting and act like no more houses will ever be built or sold. While cycles in the mortgage market are nothing new, everything has changed.

Today's purchase market is in a constant state of re-calibration and consists of new families, unique demographics and different expectations. …

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