Most Single-Family Renters Will Continue to Rent Rather than Buy Their Next Home

Fannie Mae's latest quarterly National Housing Survey (NHS) finds consumer pessimism growing with concerns about job loss, as 64 percent of Americans surveyed during the second quarter saying the economy is on the wrong track, the most for any quarter since the inception of the survey in the first quarter of 2010. That pessimism continued to mount in July, with Fannie Mae's monthly survey finding that 70 percent now believe the economy is on the wrong track, and just 23 percent say the economy is heading in the right direction.

"Consumers are more cautious due to concerns over employment and household finances," said Doug Duncan, vice president and chief economist of Fannie Mae. "As a result, consumer spending, which accounts for about 70 percent of the economy, ground to a halt in the second quarter. Consumers are more hesitant to take on additional financial commitments, and a setback to confidence means a setback to the recovery of the housing market."

Job Security

• Twenty-six percent of American workers report being concerned about losing their job in the next twelve months. While 44 percent of concerned American workers report having a home mortgage (compared to 42 percent of all Americans), just 33 percent of them perceive their savings to be sufficient (versus 49 percent of those workers not concerned about losing their job).
• Forty-four percent of these workers say their household expenses have increased significantly over the past year, compared to 35 percent of workers not concerned about losing their job.
• Employed Americans concerned about job loss are more likely than all employed Americans to say it is a bad time to buy a home and they are more likely to say they would rent their next home.

Single-Family Renters

• More than fifty percent of renters report living in single-family homes.
• Despite just 23 percent of single-family renters saying that renting makes more sense than buying a home, 53 percent say they would continue renting if they were going to move.
• Seventy-three percent of single-family renters say it would be difficult for them to get a home mortgage, with 33 percent citing their credit history as the biggest obstacle to getting a home mortgage (versus 20 percent of multifamily renters).
• Compared to multifamily renters, single-family renters are younger and more likely to have children.

Minority Mortgage Borrowers

• Thirty-one percent of minority mortgage borrowers report being underwater compared to 23 percent of non-minority mortgage borrowers.
• Thirty-five percent of minority borrowers say they are making a great deal of financial sacrifice to own, compared to 20 percent of non-minority borrowers.
• Minority borrowers are more likely than non-minority mortgage holders to live in states with above-average levels of negative equity and are more likely to report lower family household incomes (44 percent say their family income in 2010 did not exceed $50,000, compared to 23 percent of non-minority borrowers).

The Fannie Mae Second-Quarter 2011 National Housing Survey polled homeowners and renters to assess their attitudes toward owning and renting a home, confidence in homeownership as an investment, the current state of their household finances, views on the U.S. housing finance system, and overall confidence in the economy.

Duncan states, "Survey data make clear the relationship between home purchase demand and concerns about the stability of employment. Dissatisfaction about the direction of the economy and related employment fears are damping demand to buy homes and slowing the recovery. People who believe owning is a better deal than renting are nonetheless planning to rent, at least until things improve it would seem."

Other Survey Highlights

• Consistent with previous findings, most Americans think it would be difficult for them to get a home mortgage today (53 percent) and increases to 71 percent among renters.
• While 51 percent of Generation X Americans (age 35-44) say it would be difficult for them to get a home mortgage today, the number increases to 59 percent among Generation Y (age 18-34).
• Thirty-five percent of Pre-Baby Boomers (age 65 and older) say they know someone in their area or neighborhood who has defaulted versus 42 percent for Generation Y and 49 percent for Generation X Americans.
• Twenty-six percent of mortgage borrowers say they are underwater, compared with 23 percent in Q1.
• Underwater borrowers remain more likely to be stressed about their debt than all mortgage borrowers—42 percent of underwater borrowers say they are stressed about their debt, compared to 31 percent of all mortgage borrowers.
• Underwater borrowers are more likely to know someone who has defaulted on their mortgage—57 percent of underwater borrowers versus 49 percent of all mortgage borrowers and 43 percent of the general population.
• As in previous quarters, 2 out of 3 respondents support mortgage modifications, believing such programs help protect the economy and local communities from increased foreclosures and falling home prices.
• In line with previous quarters, 57 percent of Generation Y Americans (age 18-34) expect their personal situation to improve over the next year, compared to only 42 percent among Generation X (age 35-44) and 35 percent among Baby Boomers (age 45-64).

Feds Want to Make Fannie and Freddie Foreclosures Rental Properties

The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and Department of Housing and Urban Development (HUD), announced a Request For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac, and the Federal Housing Administration (FHA).

The RFI’s objective is to help address current and future REO inventory. It will explore alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.

The RFI calls for approached that meet a number of objectives including "strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO."

“As we continue moving forward on housing finance reform, it’s critical that we support the process of repair and recovery in the housing market,” said Treasury Secretary Tim Geithner. “Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets, and support neighborhood and home price stability.”

HUD Secretary Shaun Donovan said in the press release the move could also alleviate the strain on the affordable rental market. 

Fannie Mae Survey Finds More Americans Will Rent

Fannie Mae's July national consumer attitudinal survey finds that Americans' attitudes about the economy, household finances, and homeownership are growing more pessimistic – with 70 percent of Americans believing that the economy is moving in the wrong direction, while only 23 percent think the economy is moving in the right direction. Key indicators show that more consumers across the country have diminished expectations for home prices and their personal finances, more are thinking about renting as a next step, and twice as many are reporting significantly higher expenses than incomes.

“The impact of recent financial market volatility on household wealth has been a setback to consumer confidence, which we’re seeing in our survey results and in Americans’ continued restraint in their willingness to take on additional financial commitments,” said Doug Duncan, vice president and chief economist of Fannie Mae. “Our overall July survey data, beyond the eleven indicators we present this month, show that most Americans think the economy is on the wrong track – the highest level of pessimism to date for this topic. The sluggish pace of job growth, coupled with this economic uncertainty, is clearly having an impact on consumers’ attitudes toward the housing market and their own personal financial situations.”

The survey found on average and consistent with June, Americans believe home prices will decline slightly over the next year. Only 11 percent of respondents say it is a good time to sell one’s home (similar to May and June 2011 survey results). Despite Americans’ expectations that rental prices will go up in the next 12 months, fewer Americans say they would buy their next home (down 5 percentage points) and more of those surveyed say they would rent (up by 3 percentage points).

S&P Downgrades Fannie and Freddie

Standard & Poor's has downgraded mortgage giants Fannie Mae and Freddie Mac from AAA to AA+ citing the company's reliance on the U.S. The S&P action also included 10 of 12 federal home loan banks. government. Fannie and Freddie were taken over by the government in 2008.

Commercial/Multifamily Mortgage Lending Up 107 Percent from Last Year

Second quarter 2011 commercial and multifamily mortgage loan originations were 107 percent higher than during the same period last year and 52 percent higher than the revised figures for the first quarter of 2011, according to the Mortgage Bankers Association’s (MBA) Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations.

“Commercial/multifamily mortgage borrowing and lending continues to rise from the depths of 2009 and 2010,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Greater stability in property fundamentals and prices, and an improving sales market, are providing greater clarity for borrowers and lenders alike. Property values and interest rates – coupled with job growth, consumer spending, household growth and other macro-economic trends that drive demand for commercial real estate – will be keys to how property owners seek and qualify for mortgage financing going forward.”

Second Quarter 2011 Originations 107 Percent Higher than Second Quarter 2010

The 107 percent overall increase in commercial/multifamily lending activity during the second quarter of 2011 was driven by increases in originations for all property types. When compared to the second quarter of 2010, the increase included a 141 percent increase in loans for health care properties, a 125 percent increase in loans for hotel properties, a 116 percent increase in loans for retail properties, a 114 percent increase in loans for multifamily properties, a 54 percent increase in office property loans, and a 34 percent increase in industrial property loans.

Among investor types, loans for conduits for CMBS saw an increase of 638 percent compared to last year’s second quarter. There was also a 150 percent increase in loans for commercial bank portfolios, an 87 percent increase in loans for life insurance companies, and a 58 percent increase in loans for Government Sponsored Enterprises (or GSEs – Fannie Mae and Freddie Mac).

Second Quarter 2011 Originations 52 Percent Higher than First Quarter 2011

Second quarter 2011 commercial/multifamily mortgage originations were 52 percent higher than revised originations in the first quarter of 2011. Compared to the first quarter, second quarter originations for health care properties saw a 161 percent increase. There was an 87 percent increase for hotel properties, a 73 percent increase for retail properties, a 47 percent increase for multifamily properties, a 31 percent increase for office properties, and a six percent increase for industrial properties.

Among investor types, loans for conduits for CMBS saw an increase in loan volume of 210 percent compared to the first quarter, loans for commercial bank portfolios saw an increase in loan volume of 41 percent compared to the first quarter, originations for life insurance companies increased 37 percent from the first quarter to the second quarter of 2011, and loans for GSEs increased by 20 percent during the same time span.

March Toward Rentership Society Continues

Perhaps another sign of a shift in the federal government toward a rentership society comes with an announcement from Fannie Mae. The company announced that in the first half of 2011, it had issued $10.3 billion in MBS backed by new multifamily acquisitions.

"In today's economic environment, Fannie Mae continues to deliver liquidity to the multifamily housing market and provide investment options to market participants," said Kimberly Johnson, Fannie Mae Vice President for Multifamily Capital Markets. "Through our multifamily MBS issuance (including DUS MBS, GeMSTM structured transactions and portfolio activities), Fannie Mae provided market participants with considerable volume and a variety of execution options in the first half of 2011."

Beginning in 2009, Fannie Mae says it made reinvigoration of its multifamily MBS business and broadening the investor base a top priority. By ramping up its MBS execution and transforming the multifamily capital markets business, Fannie Mae has shifted from being primarily a multifamily portfolio market participant to one that provides liquidity to the multifamily market mainly through securitization.

Fannie Mae provides the largest share of U.S. multifamily mortgage financing, and traditionally has been a leader in this market.