Benefits of Homeownership Linked to Good Lending – Study
Jann Swanson | Mortgage News Daily | Jun 11 2013 | link
Contrary to the increasingly prevalent argument that the benefits of homeownership have been overemphasized, a new study by finds that it is still a good investment for low- and moderate-income households. But there is a caveat: The lending process must be done right, through responsible mortgage practices.
Michal Grinstein-Weiss and a team of researchers looked at a group of homeowners who got vanilla loans at a time where everyone else in similar circumstances were pushed into the subprime market. These vanilla borrowers subsequently reported higher net worth than a comparison group of participants who remained renters. Their findings are outlined in an article titled Is Homeownership Still a Sound Financial Move? published in the journal Housing and Policy Debate.
The research team used data from the Community Advantage Program (CAP) to compare a group of low- and moderate-income homebuyers with renters in the same income bracket. CAP provides traditional 30-year fixed-rate mortgages with predictable terms and sound underwriting to borrowers who would otherwise qualify only for subprime products. The team compared the experiences of these homebuyers and their renting counterparts on total net worth, total assets, total debts, total liquid assets, and total non-housing net worth.
The team’s findings suggest that homeownership coupled with sustainable mortgages helped participants achieve greater increases in most of these variables than was reached by the renters.
Over the 3-year study period (2005-2008), the new homeowners reported an average increase of $15,000 in total net worth while renters reported gains of less than $11,000. The changes broke down to an increase in the new homeowners’ total assets of $20,000 while their total debt grew by only $5,000. For the renters, total assets increased by one-quarter less ($15,000) and total debt increased by about the same as the homeowner group ($4,500). The homeowner group also showed greater gains in total liquid assets ($3,660) and total non-housing net worth ($3,036) than the amount of increases reported by renters. Read more…