U.S. homeownership declined to its second lowest level in 13 years during the third quarter, the Census Bureau reports.
The report comes as more borrowers were evicted from their homes due to foreclosures and tightening mortgage standards kept potential homebuyers out of homes. The homeownership rate was at 66.3 percent during the quarter, slightly higher than the prior quarter when the rate was at 65.9 percent. This increase represent the first gain seen in two years.
Meanwhile, the vacancy rate, which measures empty properties for sale, edged lower to 2.4 percent – a 0.1 percent change from the second quarter. In the third quarter, there were 18.8 million vacant homes, which include foreclosures, properties for sale and vacation homes, compared to 18.9 million during the third quarter in 2010, says the Census Bureau.
The implementation of stricter lending standards paired with fear that national home prices will continue to depress is keeping many consumers from taking advantage of the 28 percent drop in property values since 2006, deputy chief economist at the Panthenon Group, Richard DeKaser, told Bloomberg.
"People view it as a good time to buy, but there’s a risk aversion on the part of buyers and lenders," DeKaser told the source. "The fact that millions of people are losing their equity and their homes isn’t helping that."
However, some analysts predict that the homeownership rate hasn't hit rock-bottom yet. There is still a significant backlog of foreclosures that will turn into evictions. Many of these cases will not come to a conclusion until sometime next year since the average time between the first late payment and eviction has extended to 20 months, says Lender Processing Services.
Stricter lending practices and additional fees by Fannie Mae and Freddie Mac has had an affect on the homeownership rate. In April, the mortgage giants increased risk premiums it charges lenders to guarantee most mortgages which are added on top of standard fees. For example, a borrower with a credit score of 698 and a 20 percent down payment on a $300,000 loan would be facing additional fees upwards of $5,000 at closing. Additionally, Fannie and Freddie have started charging an adverse market fee that creates fees upwards of $750.
Despite the moderate improvement, there are indicators that there could be a spike in homeownership rates. The Mortgage Bankers Association reports recent increases in the volume of mortgage applications. The Market Composite Index, which measures loan application volume, rose 0.2 percent this past week compared to the week prior, while refinancing activity made up 77.1 of all loan applications.
This finding comes after an announcement from the Office of the Comptroller of the Currency reported that independent foreclosure reviews have started in the hopes of compensating former homeowners who may have been wrongfully evicted. Under the enforcement efforts, 14 major lenders will be examined.
"The independent foreclosure review is a significant component of the mortgage servicers' compliance with our enforcement actions," said acting Comptroller of the Currency John Walsh. "These requirements help ensure that the servicers provide appropriate compensation to borrowers who suffered financial harm as a result of improper practices identified in our enforcement actions."
Should any offenses be discovered in the estimated 4.5 million cases that will be reviewed, the borrower could find themselves back in the home they were initially evicted from, further stimulating the homeownership rate.
