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Homeownership

What the real estate industry must do now to drive equity in housing

(REAL ESTATE) While some folks remain complacent, and others digest the causes, these industry experts are focused on what actions will improve equity in housing.

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A difficult discussion has finally come to light in America regarding inequities in our systems. DEI (diversity, equity, and inclusion) efforts are being made in corporate environments, typically stemming from leadership and executed by HR departments as a way of improving work cultures to attract top talent.

Yet independent real estate practitioners don’t always know exactly what their specific role in housing can be when it comes to DEI. The National Association of Realtors (NAR) updated their Code of Ethics to include barring anyone from membership who uses harassing or hate speech (online or offline) toward any protected class. That’s progress. But more can be done.

At the NAR 2021 iOi Summit, NAR CEO, Bob Goldberg moderated the first panel that kicked off the event and set the tone, entitled “Can Tech Drive Fairness & Equity in Housing?”

Surprisingly, the panel didn’t focus exclusively on what types of inequities persist (as has become standard at many conferences), rather what actions can be taken to remedy them – a point Goldberg repeatedly brought the topic back to. Actions.

Panelist Melissa Koide, FinRegLab Founder and CEO noted that there are up to 60 million Americans who are “insufficiently able to be credit risk assessed,” a concept known as credit invisibility, which disproportionately impacts consumers of color. Obviously credit is the mechanism used to underwrite all loans, especially mortgages, so improving this process is critical to equity in housing.

Goldberg asked, “Technology drives all aspects of the homeownership process and the rental process. How can we make invisible credit visible?”

Koide noted that people can be brought into eligibility by evaluating other indicators of financial stability like bank account data. In other words, during the pandemic when folks received federal aid, did someone pay down their credit card debt, or did they prioritize their rent or mortgage payments?

It sounds idealistic, despite Fannie Mae recently announcing that rental history payments (by identifying bank account data) to qualify more buyers without repeating the ridiculous no-doc loans that played a large role in the housing crash in 2008.

But it’s already being put into play – Koide says several large banks are already implementing pilot programs to look at this kind of banking data to determine who they can extend credit to in the pool of credit invisible. And it’s not new – over a decade ago, CoreLogic began putting their massive data collection efforts to work by implementing an alternative credit scoring model. Yet many folks remain credit invisible.

With organizations slowly improving how they serve the credit invisible, panelist Bryan Greene, VP of Policy Advocate at NAR said that looking to bank records to raise credit visibility has “a very positive domino effect,” wherein newly qualified consumers may get credit on more favorable loans at lower rates which he notes will lower their debt burdens.

Panelist Lisa Rice, President and CEO at the National Fair Housing Alliance (NFHA) points to redlining and disinvestment as creators of expanding credit deserts where mainstream lending products are not available (even banking), noting that 30% of African American and Latino consumers in America are credit invisible as a result.

“It doesn’t mean they’re not credit worthy,” Rice said, “it’s that they’re using forms of credit not reported to credit repositories.” She notes that predators like payday lenders have come in to fill that gap.

In addition to addressing the credit invisible to improve equity in housing, Goldberg asked how to get people to pay attention to the algorithmic fairness that “obviously must be taken into account to make it fair for under-served communities.”

Rice asserted that a tremendous obstacle is that regulators have not come up with a definition for algorithmic fairness, despite “a lot of brilliant minds grappling with how to define that fairness.” Although we can test for fairness, we can recognize what is not fair, we’re “in a state of purgatory where we are comfortable with finding alternatives that are less discriminatory then utilizing and employing those less discriminatory alternatives into the marketplace.”

Greene added that algorithmic testing has been around for at least 60 years and involves a scenario where “two people with comparable housing profiles seek a housing opportunity and present the same information about their financial circumstances and evaluate the results,” which is used to spot discrimination in housing, a practice the Supreme Court has validated as the method for testing fairness. We simply move that practice to the technology space to indicate algorithmic fairness.

The challenge, Greene notes, is that “algorithms might not take into account other things that determine creditworthiness. Systems don’t take into account all aspects of creditworthiness.”

Implicit bias is part of the human condition, and Rice importantly points out that this bias is embedded into the data we use. “Our Tech Equity Initiative is toying with ways of de-biasing tech, extricating the bias embedded in the data that is looking to generate despair in the outcomes.”

“Garbage in, garbage out” is a common phrase in tech, indicating that if bad data is input, the output can’t be good. For example, some want to take humans out of the parole process, using AI to make those decisions without human biases. But the data it would use to make those decisions is historical data which obviously is rife with human error. It simply cannot be fairly done with current data.

So if tech can’t create fairness, nor can humans, what is the answer? The two must be married.

Greene illustrates this concept by noting human appraisers are still necessary to review automated valuations, especially to check for those biases. He states, “We hear of these situations where there’s a biracial couple and when a black spouse is home, [there is a] lower appreciation, if the white spouse is home, [it’s] higher. To have a system to check and make sure people have considered all appropriate variables could be helpful.”

Goldberg asked what policy changes need to be put into place.

Rice contends that “deep expertise” required to craft policy exists primarily in the private market, so “technology has outpaced the policies and the policymakers.” Algorithmic fairness will persist until the people writing laws actually understand the subject matter.

Koide upholds that being able to explain the algorithms is essential, that transparency around data privacy is crucial, and that using alternative financial data in underwriting is what must now happen. “It’s not the sexy stuff,” she affirmed, “but it’s foundational as to how we’ll overcome the historical disparities.”

Goldberg closed by asking what attendees (tech leaders in the real estate vertical) can do to address this challenge.

Greene said, “Continue to question assumptions about how people live and what makes people creditworthy,” adding that it is critical to “test and validate” to make sure practices are fair and representative.

Koide urged real estate tech to support research by sharing data with organizations like hers, or with people in academia. “It’s critical to how we’ll get this right and get traction.”

“Lead with equity,” Rice said. “We got to this place because we lead with inequity deliberately and purposely. So we have to deliberately lead with equity.”

Homeownership

Remodeling projects like these increase a home’s value the most

(HOMEOWNERSHIP) Knowing which remodeling projects to tackle when a home is being put on the market can save a lot of wasted effort and money.

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remodeling

If you’re looking to help your clients to identify which projects to tackle before putting their home on the market, look no further: the National Association of Realtors surveyed thousands of real estate agents, industry professionals, and consumers on interior and exterior house remodeling projects, and these are the best projects for upping a home’s value before listing it on the market, ranked on the most value and cost recovery a homeowner can get.

  • Refinishing hardwood floors. Start from the bottom to earn top dollar. Refinishing floors transform a home from worn-out and aging to vibrant and inviting, and only costs about $2500 according to the National Association of the Remodeling Industry (NARI). The project also increases a home’s value by that same amount, meaning a homeowner can recover 100 percent of the costs. Pretty sweet deal.
  • Upgrading insulation. Because it’s what’s inside that counts. This project costs about $2100 based on NARI Remodeler’s estimate and increases a home’s value by $2000 according to Realtors surveyed. That’s a 95% cost recovery.
  • Adding new wood floors. If you don’t have wood floors to refinish, add them in! This costs about $5,500 according to NARI Remodelers, and the increased sales value is $5000. A homeowner can recover 91% of costs from a new wood floor addition.
  • Replacing HVAC system. A new HVAC system adds energy efficiency and refreshes the entire home, and NARI Remodelers estimate doing so costs $7000. The increased value for sellers is $5000 according to NAR REALTORS, meaning an easy breezy 71% cost recovery for homeowners.
  • Converting a basement into a living area. Not only is this cost and space-efficient, it’s also undeniably trendy. A basement makeover costs about $36,000 according to NARI Remodelers estimate and increases value for sellers by $25,000 according to Realtors surveyed. That comes out to a cost recovery of 69%.

Which projects are the most costly?

In case you’re curious, these are some of the most expensive remodeling projects:

  • New master suite. More like master $uite – this costs about $112,500 with a cost recovery of 53%. 
  • Converting an attic into a living area. Cute idea, but also a $65,000 one with a 61% cost recovery. One might say the price is through the roof.
  • Complete kitchen renovation. This project costs an estimated $60,000 with a 67% cost recovery. Even more if you want to throw in a brick oven, and you probably do.
  • New bathroom. With an estimated cost of $50,000 and a 52% cost recovery, make sure you aren’t flushing money down the drain with your bathroom addition!

These trends change over the years, so make sure your knowledge is up to date locally since we all know local trends trump national. Hopefully today you’ve garnered some ammo to help clients better understand how to improve their home’s value!

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Homeownership

Marriage is happening later in the US and the reason is not what you think

(HOMEOWNERSHIP) It’s seemingly later and later that Americans are getting married. You may have ideas as to why, but the reasoning is not what you think.

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marriage move in

As we know, homeownership is a cornerstone of American family life. Homes provide long-term financial stability as a major investment for homeowners. Furthermore, they also provide a strong environment in which to raise a family; so many of us have fond memories of running around our backyards or cozying up in the family room. So, it stands to reason that homeownership and marriage are tied together; many couples will buy a home soon before or soon after marriage.

With all that said, some of the following statistics may be alarming, as it points to a trend that may play into the delay of homeownership.

Lots of data gathered over the past few years shows Americans are marrying later and later, if at all, according to a report from The Guardian. Today, Half of American adults are married, compared to 75% in 1960. The disparities are mostly consistent with class divisions.

Per the Guardian article, “26% of poor adults are married, compared with 51% in 1990.” That same study found 39% of the modern working class of adults are married, but that number was 57% in the 90s.

Education is closely tied with financial status, so an education disparity is also present. Today, 50% of adults with a high school are married; that rate was over 60% 25 years ago.

As the Guardian puts it, “Young people are increasingly seeing marriage as a “capstone” rather than a “cornerstone” event, a crowning achievement once other goals have been reached, rather than a launchpad for adulthood.”

That achievement is financial stability, and many more Americans are feeling a financial crunch.

There’s data to back this up, too. For example, a poll found “nearly half of never-married adults with incomes under 30k say being financially insecure is a major reason” behind their lack of marital commitment to a partner.

Part of a steady income is a steady job, and past Pew Research found 78 of never-married women wanted a future partner to have a steady job.

A decline in manufacturing jobs is contributing to this as well, per some economic research on the subject, which may help to explain how the steepest drops in marriage rates come from the lower and middle class.

It’s not unreasonable to speculate that major living costs factor into that decision as well. For example, with real estate prices going up around the country, especially in major cities with strong job markets, the capstone that is owning a home is pushed farther away from the average American.

If marriage and homeownership are so closely tied together, the delay of one may also contribute to a delay in the other.

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Homeownership

How buyers are competing in a tight housing market

(HOMEOWNERSHIP) It’s a seller’s market with housing supply at an all-time low. Here’s what buyers are doing to increase their chances of buying a home.

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family in their living room with moving boxes during the competitive housing market

Home inventory is at an all-time low in most places around the country. Most people believe that the COVID-19 pandemic is responsible. Families are staying put in their homes, rather than looking for a new place to live. Sellers and realtors are winning in this highly competitive market, making us wonder how buyers are faring.

Cash is king

According to the NAR, cash sales are up by an average of 21%. Buyers are hoping that cash makes their offer more attractive. Closing without a loan has a lot of benefits to the seller. The sale is more likely to close, as it isn’t dependent on a loan. Plus, there are fewer costs involved in the closing. Since 2013, cash sales haven’t been trending upward, so this is an interesting turn for sellers. Buyers who make cash offers reduce the risk of getting rejected by the seller.

Buyers making larger down payments

Sellers also benefit when buyers make a 20% down payment or more. A higher down payment increases the chance of getting a loan. According to the NAR, almost 50% of buyers are making a down payment of at least 20%, which is up from 40% of buyers in 2011. Buyers avoid mortgage insurance premiums, which makes it a win-win for everyone.

Buyers aren’t even offering or negotiating

The third way buyers are coping in this market is to back off and not even make an offer when they know a home already has competition. Why get your hopes up, only to have them dashed when you can’t negotiate?

Will supply return?

The good news is that the housing supply outlook is on the increase. As vaccinations roll out and people feel safer to show their home, more homes should come on the market. Housing permits are up, too. This should help even out the market and give buyers a better chance to find a home.

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