Professional handwringers are maintaining a hyper-vigilant watch over the real estate market these days, anxiously looking for signs of gloom and doom. As neighborhood revitalization and affordable housing advocates, we view the pessimistic talk of “bubbles” and “froth” as a call to strengthen our resolve to encourage and promote responsible, informed homeownership.
Those who believe homeownership is a worthwhile goal only when home prices are rising and interest rates are falling are using poor logic. Whether home prices or interest rates rise or fall over the short term, homeownership is the strongest engine for creating wealth. Homeownership plays a vital role in helping families move into the economic mainstream and stay there.
Homeownership = Wealth
Let’s look at the data: Roughly 60 percent of the average American’s wealth is the equity in his or her home. As the data shows, homeowner median net wealth was $150,500 in 2001, while the average renter’s net wealth was $4,810. Homeowners earning less than $20,000 have 66 times the net wealth of their renting neighbors. The wealth gap between whites and nonwhites is even wider. As champions for have-not communities, we must recognize wealth inequality as the most fundamental civil rights issue of our time.
For most families, homeownership is an asset that builds more equity than any other investment, especially among minorities. Blacks are more than twice as likely as whites to use their home equity to increase future wealth through investment in business or education. In short, homeownership creates traction for accumulating future wealth and we must do all we can to keep this hope for the future alive.
Since we began our Campaign for Homeownership in 1993, NeighborWorks has helped more than 90,000 households become homeowners. Ninety-two percent were first-time homebuyers and more than half were minority households. Nearly half were female-headed households. The experience of our NeighborWorks organizations shows that pre-and post-purchase education and counseling and responsible, user-friendly lending are the twin paths to helping families buy and keep their homes – building wealth and equity.
When the first issue of Shelterforce rolled off the press 30 years ago, lack of access to credit was the problem; today’s borrowers face the peril of too many choices. Mortgage products are numerous and complex and buyers can “qualify” for a home loan in a matter of seconds. The result: Many consumers make poor choices and pay far too much, putting them at risk for future foreclosures and financial ruin. This must change by empowering more consumers with counseling and education.
Studies show that credit and pre-purchase homeownership education and counseling can help consumers make better choices, lowering mortgage delinquency rates by up to 34 percent. Unfortunately only 15 percent of first-time homebuyers receive quality training in advance; many others miss opportunities to make the most of their investments. As the nation’s largest certifier of homeownership education counselors, NeighborWorks is committed to increasing the quantity and quality of homeownership and financial education, so that more than two million individuals can receive counseling each year by 2007.
The community development field has done a good job extending the American Dream to underserved minority and immigrant markets. Minority homeownership rates are currently at a historic high of more than 50 percent. We can do more. Whether home prices are rising or falling, people want to become homeowners. Unfortunately many immigrants do not have traditional forms of credit, making qualifying for a mortgage challenging. NeighborWorks organizations like El Centro, Inc. in Kansas City, KS, and Neighborhood Housing Services of Fort Worth, TX, are helping families establish credit histories based on rent, pay stubs, utility bills and other records that demonstrate responsible money management.
Technology can also help us extend homeownership to more families and ensure that consumers are matched with appropriately priced loans. NeighborWorks has partnered with Neighborhood Housing Services of America to create and pilot a state-of-the-art, first-of-its-kind web-based automated underwriting system that is providing conventional market pricing to unconventional borrowers. This revolutionary technology has the potential to provide the smallest NeighborWorks organization with the same tools that Countrywide, Ameriquest and the other big lenders have. This creates buying power for consumers typically left out of the market or forced to buy very expensive subprime loans, and it removes the mystery of credit quality, bringing unprecedented transparency to lending.
Thirty years ago, we didn’t talk about wealth building as a way to lift more people out of poverty. Our goals were more stop-gap. Today there is an active discussion among Republicans and Democrats and those in the private and nonprofit sectors about ways more people can gain financial independence through asset building. The community development field should embrace this opportunity to encourage more responsible, informed homeownership.
As I write this, interest rates are rising slightly from the lowest rate since Shelterforce started publishing, but this isn’t the first time the real estate market has presented challenges. NeighborWorks has created successful homeowners in every interest rate environment and in every type of economy. We know the real risk isn’t that the real estate “bubble” will burst. The real risk is that we will begin to doubt that homeownership is the best avenue to create wealth, to revitalize communities and for families to take responsibility for their neighborhood.