Homeownership rates in the United States have increased steadily since the height of the 2007-2010 housing crisis. Despite this, increasing interest rates and high home prices have kept the homeownership rate much lower throughout 2018 than it was during the era before the crisis.
Housing prices have recently begun to cool, however, which may create opportunities for some would-be buyers to be able to afford a home. But this does not mean that the homeownership rate will approach its previous peak levels anytime soon. Nonetheless, the overall housing market is in a healthy state, with very low levels of distressed loans.
Throughout this piece, we dig into a broad range of housing metrics to help paint a picture of the current state of the housing market, explain who gets home financing, how mortgages are structured and how Americans are managing our debt.
In the second quarter of 2017, real estate values in the United States surpassed their pre-housing-crisis levels. As of the third quarter of 2018, the total value of real estate owned by individuals in the United States is nearly $25.6 trillion19, and total mortgages clock in at $10.3 trillion.1 This means that Americans have $15.2 trillion in home equity.12 This is the highest value of home equity Americans have ever seen.
However, real estate wealth is becoming increasingly concentrated as overall homeownership rates fall. In 2004, 69% of all Americans owned homes. Today, that number is down to 64.4%.4 While home affordability remains a question for many Americans, the downward trend in homeownership also corresponds to banks’ tighter credit standards following the Great Recession.
Mortgage origination levels have recovered from their housing crisis lows. In 2008, financial institutions issued just $1.4 trillion of new mortgages. In 2016, new first lien mortgages topped $2 trillion for the first time since the end of the housing crisis, but mortgage originations were still 25% lower than their pre-recession average.8 New first lien mortgages fell to $1.8 trillion in 2017. Through the second quarter of 2018, banks originated just $820 billion in new mortgages, which is $20 billion lower than it was at the same point in 2017.
As recently as 2010, three banks (Wells Fargo, Bank of America and Chase) originated 56% of all mortgages.13 But in 2017, Wells Fargo, Bank of America and Chase and all banks put together originated just 40% of all loans.9
“Nonbank” lending, both credit unions and nondepository lenders have continued to cut into banks’ share of the mortgage market. In 2017, credit unions issued 9% of all mortgages. Additionally, 51% of all mortgages in 2017 came from non-depository lending institutions like Quicken Loans and PennyMac. Behind Wells Fargo ($212 billion) and Chase ($108 billion), Quicken ($86 billion) was the third-largest mortgage issuer in 2017. In the fourth quarter of 2017, PennyMac issued $17 billion in loans and was the fifth largest lender overall.9
Banks tend to be more willing to issue new mortgages if a third party will buy the mortgage in the secondary market. This is a process called loan securitization. Consumers can’t directly influence which entity buys their mortgage, but mortgage securitization influences who gets mortgages and their rates.
Government-sponsored enterprises (GSEs) have traditionally played an important role in ensuring banks will issue new mortgages. Through the second quarter of 2018, GSEs Fannie Mae and Freddie Mac purchased 44% of all newly issued mortgages, down from 46% in the second quarter of 2017.8
Through the second quarter of 2018, private securitization companies purchased only 2% of all loans, notably higher than the .6% purchased in 2017.8 Prior to 2007, private securitization companies held $1.6 trillion in subprime and Alt-A (near prime) mortgages. In 2005 alone, private securitization companies purchased $1.1 trillion worth of mortgages. Today, private securitization companies hold just $438 billion in total assets, including $361 billion in subprime and Alt-A loans.14
As private securitization firms exited the mortgage landscape, programs from the Federal Housing Administration (FHA) and U.S. Department of Veterans Affairs (VA) have filled in some of the gap. The FHA and VA are designed to help borrowers get loans despite having smaller down payments or lower incomes. FHA and VA loans accounted for 23% of all loans issued in 2017, and 22% in the first half of 2018.8. These loan programs are the only mortgages that grew in absolute terms from the pre-mortgage crisis. From 2001 through 2007, FHA and VA loans only accounted for an average $138 billion in loans per year. In 2017, FHA and VA loans accounted for $441 billion in loans issued.8 In 2017, 24% of all first lien mortgages were financed through FHA or VA programs.
Portfolio loans — mortgages held by banks — accounted for $524 billion in new mortgages in 2017. Despite tripling in volume from their 2009 low, portfolio loans remain down 29% from their pre-crisis average.8
As of 2017, banks have issued 31% fewer mortgages compared with a pre-crisis average between 2001 and 2007. This means that borrowers need better credit in order to get a mortgage. 8
The median FICO score for an originated mortgage rose from 707 in late 2006 to 758 in November 2018. 11
Despite the dramatic credit requirement increases from 2006 to today, banks are starting to relax lending standards somewhat. In the first quarter of 2012, the median borrower had a credit score of 781, 23 points higher than the median borrower in November 2018.11
From the third quarter of 2001 through the end of 2008, an average of 20% of all mortgages originated went to people with subprime credit scores (lower than 660). In the third quarter of 2018, subprime borrowers received just 9% of all mortgages.
Meanwhile, the share of mortgages issued to borrowers people with excellent credit (scores above 760) doubled. Between the third quarter of 2001 and the end 2008, just 28% of all mortgages went to people with excellent credit. In the third quarter of 2018, 57% of all mortgages went to people with excellent credit.6
Although banks tightened lending standards related to maximum debt-to-income (DTI) ratios for their mortgages in response to the market crash of 2008, they have recently begun to show signs of loosening those standards. For example, the average DTI ratio in 2017, 35.1%, was more than one point higher than the average DTI ratio in 2016, 34.0%. Nonetheless, the average DTI ratio is still lower than it was in 2007 where it was 38.4%.
Banks continue to screen customers on the basis of credit score and income, but customers who take on mortgages are taking on bigger loans than ever before. Today, a new mortgage has an average unpaid balance of approximately $260,000 according to data from the Consumer Financial Protection Bureau.3
The primary drivers behind larger loans are higher home prices, but lower down payments also play a role. Prior to the housing crisis, more than half of all borrowers put down at least 20%. The average loan-to-value ratio at loan origination was 82%.10
In 2018, the average loan-to-value ratio at origination has fallen to 86% from 87% in 2017.10
As of November, 2018, the average loan-to-value ratio across all homes in the United States is an estimated 40%. The average LTV on mortgaged homes is 63%.16 This is substantially higher than the pre-recession LTV ratio of approximately 60%. Between 2009 and 2011, more than a quarter of all mortgaged homes had negative equity. Today, just 4.2% of mortgaged homes have negative equity.17
Americans continue to manage mortgage debt well. Current homeowners have mortgage payments that make up an average of just 15.1% of their annual household income.18
In quarter three of 2018, mortgage delinquency rates were 3.0%. This low delinquency rate is well below the 2010 high of 11.5% delinquency.20
Today, delinquency rates on mortgages fully returned to their pre-crisis lows, and can be expected to stay low until the next economic recession.
Mortgage debt service payments as a percentage of disposable personal income have fallen to their lowest levels since 1980, when the data was first recorded.