Tuesday, July 17, 2018

Andrew Dowd

Homeowners spend less of paychecks on mortgages after recession

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Emerging from the Great Recession, homeowners — including those in the Chippewa Valley — are paying a smaller portion of their income on their mortgages.

Matt Gerber, vice president of mortgage lending at Eau Claire-based RCU, said that members once came in asking the maximum they could afford to borrow for a home, but now they arrive at the credit union with a figure already in mind.

“Now the conversations are more them coming to us and telling us what they’re comfortable doing,” he said.

Gerber attributes that shift in part to recent homebuyers who became wary after seeing the effects that previous housing and mortgage bubbles had on others.

“Due to that, they are usually a little more educated, well-established and more certain on what they are comfortable with their debt-to-income ratio,” Gerber said.

Jeff Engum, mortgage originator and Eau Claire branch manager of Finance of America, agrees that borrowers have become more savvy by researching online and consulting with mortgage experts before making a decision.

“People are just smarter with their mortgages in my opinion,” he said in an email.

By the numbers

Recently released Census Bureau statistics from survey data collected in 2007-11 showed that 34 percent of U.S. households were spending less than 20 percent of their income on monthly housing costs, including mortgage payments. That rose to 42 percent of households spending less than 20 percent of their earnings from 2012-16 survey data.

The amount of U.S. households with more than a quarter of their income going toward owning a home fell during that time.

In Eau Claire County, the amount of households spending 20 percent or less on owning their homes stands got to almost 49 percent in the last five years. It was 39 percent in the 2007-11 period.

In terms of dollars, the median monthly owner costs, including a mortgage, in Eau Claire County fell by $160 in the wake of the recession. The median monthly housing costs had been $1,408 in 2007-11, but declined to $1,248 for 2012-16.

Other factors

Beyond the wariness of buying more home than they could comfortably afford, Gerber noted there are other behavioral factors at play:

• Millennials, the generation filling the workforce and now becoming homeowners, are interested in having disposable income to spend on vacations and other experiences instead of a bigger house.

• That generation also held off on buying a home, which meant they likely worked their way up in their careers while renting. Because they’re presumably making more money, their first home may take up a smaller piece of their income than if they bought when they first entered the workforce making a lower wage.

• People moving from their starter home into a family home have been forced to settle for slightly less than they’d hoped due to low inventory on the market. For example, a family may qualify to buy a $175,000 home, but the market has their ideal house going for $200,000 and some they could fit into at $150,000, leaving them to take the latter.

Beyond mortgages

The number of U.S. homes with a mortgage fell from 51.1 million during the recession and early recovery to almost 47.8 million in the more recent estimates.

Some of that decline can be attributed to homeowners, including baby boomers, who have lived in their houses long enough to pay off their mortgages and have stayed put.

“They’re retaining that house that they paid for, free-and-clear,” Gerber said.

The number of homes without a mortgage rose by 2.2 million between the 2007-11 and 2012-16 estimates. Factoring into that are homes that got paid off, people downsizing to a smaller home using the equity from a larger one, or other arrangements made to buy a home.

Renting also increased — about 3.9 million more households paying a landlord — between the recession and afterward.


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