Banking and Finance Law Daily Wrap Up, COMMUNITY DEVELOPMENT—NCRC says mortgage analysis paints ‘bleak picture’ for buyers, (Oct 9, 2024)

By Nora Macaluso

Mortgage trends are shifting in favor of rental properties and away from owner-occupied homes, the NCRC said.

Rising home prices and a dip in interest rates in 2023 created a “perfect storm” in which high values attracted revenue-seeking investors and high borrowing costs limited homebuyers’ options, the National Community Reinvestment Coalition said. The 2024 NCRC Mortgage Market Analysis found that while the share of loans to Hispanic and Black borrowers rose slightly, market metrics continue to indicate that these homeowners might not have the same advantages as wealthier buyers.

“Rising interest rates and increased housing costs disproportionately affected low- and moderate-income (LMI) borrowers, making it more challenging to enter the housing market,” the report said. “These economic pressures have exacerbated existing disparities, with higher property values making home ownership less attainable for LMI individuals and families.”

At the same time, there was a “noticeable increase” in the number of investors buying single-family homes, particularly lower-cost properties and those in the Sunbelt, the NCRC said. “This trend has made it more difficult for families to transition from renting to homeownership, as investors often outbid potential homebuyers,” the report said.

The “bleak picture” of the mortgage market outlined in the report sems from “the over-financialization of housing in America,” NCRC Senior Director of Research Jason Richardson wrote in a post on the coalition’s website. “Instead of cooling off home values, prolonged pandemic-era low interest rates spurred a gold rush of investors, both large and small, buying US homes as they borrowed at super low rates against their existing homes,” he wrote.

That led to a widening gap between renters and owners as the market shifted in favor of “landlording operations” and away from traditional owner-occupants, “leaving vast unmet demand for affordable options like manufactured homes or smaller mortgages,” the report said.

The report, an analysis of data from the Consumer Financial Protection Bureau collected under the Home Loan Mortgage Disclosure Act, examines mortgage lending trends from 2018 through 2023, and covers about 88 percent of the mortgage market, the NCRC said.

“The rising rates of 2023 effectively ended the refinance market, which had already taken a massive hit in 2022,” the report said. Refinancing loans totaled less than half of what they were in 2021, according to the analysis.

“The burst of activity in home equity and home improvement lending observed during the period of low rates has also diminished,” the NCRC said. Together with the refinancing data, this finding suggests “a need to evaluate the impact of pandemic-era rates and post-pandemic home values on future homeownership and the racial wealth gap,” the report said.

The report also found that credit unions increased their market share, particularly in home equity and home improvement loans. Credit unions financed 46.2 percent of home improvement loans, up from 33.1 percent in 2018, and their share of home equity loans rose to 39.9 percent from 29.2 percent.

Black borrowers accounted for 9.3 percent of home purchase loans in 2023, up from 9.0 percent in 2021, the NCRC found. “This means that the 12% of the adult US population who are black remain underrepresented in the mortgage market,” the report said.

“The future hinges on local communities,” the NCRC said. “They need to curb the influence of market-distorting investors and build more housing—denser and cheaper than today’s single-family mini-mansions.”

Yet local changes “are only possible with corresponding change at wider and higher levels of market activity and oversight,” the report said. “The problem demands a reconfiguration of housing finance.”

Companies: National Community Reinvestment Coalition

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