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One solution for income equality: more millennial homeowners

WASHINGTON – Oct. 28, 2015 – Millennial decisions about homeownership will significantly impact income inequality in the United States for generations to come, according to U.S. Secretary of Housing and Urban Development (HUD) Julián Castro and realtor.com Chief Economist Jonathan Smoke.
Castro and Smoke participated in a town hall discussion before an online audience and graduate students at the George Washington University. Moderated by The Wall Street Journal Economics Correspondent Nick Timiraos, Castro and Smoke talked about the economic trends that have impacted millennial homeownership – a group once predicted to become a “generation of renters” – and the challenges that remain.
“About 30 to 40 percent of the jobs created have gone to millennials over the last two years,” said Smoke. “It’s so 2012 to say these folks are down on their luck and stuck with mom and dad. About half of this year’s growth in sales is coming from first-time home buyers.”
Smoke says that millennials “believe in homeownership and long term … can see [themselves] owning a home.” He says the problem is short-term – that they can’t currently see a direct path to ownership because a number of other challenges impact them.
Tight mortgage lending standards and FHA
“The story of the last couple years has been that for … responsible folks it has been too difficult to get a home loan,” said Castro. “So the question is how do we maintain the safeguards we have in place, but also open up the credit box so more folks, including millennials, get a chance to own a home.”
Castro said FHA is doing good things “both on the affordability side and on the access to credit side.” Earlier this year, for example, “the Federal Housing Administration announced a reduction in annual insurance premiums. This action will help millennials and families save an average of $900 annually.”
Homeownership’s impact on income inequality
“Generation after generation, the primary vehicle to create wealth in our country has been through homeownership,” said Castro. “We don’t need to go back to where we were before, but we do need to have sensible and strong policies in place that offer good opportunity for responsible borrowers.
“In the U.S., homeownership has provided an opportunity for one generation to hand over to the next that opportunity and that wealth,” added Castro. “Particularly for folks of modest means and minority communities, this is an even bigger deal because traditionally minority communities have not had the same homeownership rates.”
Education and reform imperative
“The good news that happened over the last few years is the strong investment that has been made in housing counseling,” said Castro, adding HUD works in conjunction with 2,400 agencies to provide housing counseling to help consumers understand the obligations and responsibilities that go along with homeownership, and how they can prepare themselves for homeownership.
“One of the fundamental issues for younger households today is the fact that we’re still using a credit score process and standards that were essentially defined when many of them weren’t alive yet,” Smoke added. “The documentation really needs to catch up to the 21st Century.”
Many millennials earn their income from companies such as Lyft or Airbnb, Smoke said, which isn’t acknowledged when applying for a mortgage, because “it doesn’t qualify as three years of consistent employment.”
A video of the town hall meeting can be viewed on realtor.com’s website.
© 2015 Florida Realtors®
 
Source: Florida Realtors Feed

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