HOUSINGNEWS REPORT
LEAD ARTICLE
out of the parents’ home is a very important part of adulthood.”
divorce, or death. Importantly, ownership percentages are negotiable, there is no set or required arrangement. There must be a strong commitment, at least 50 years. This sounds like a fearsome obligation, but according to DC attorney Benny Kass, a long- time real estate columnist with The Washington Post, “this does not mean that the shared-equity contract has to run for more than 50 years. “As long as you rent the property for more than 50 years, or own the property outright (in “fee simple”), this satisfies the legal requirement,” Kass explains (parenthesis his). A fair market rental must be established. With shared equity there are at least two owners, an owner- occupant and an owner-investor. Let’s say each has a 50 percent interest in the property. Let’s also say that the property has 2,000 square feet.
Why are homeownership levels falling? Five barriers stand out.
Homeownership rates are down for a variety of reasons (see sidebar on this page), but the bottom line is that for millions of Americans the traditional goal of homeownership is simply off the table. Increasingly what remains is the possibility of partial ownership — shared equity — a midway point between full ownership and a lifetime of renting. How Shared Equity Works What does it take to create a shared equity agreement? Here are the basics: There must be a written shared equity agreement. This agreement must show the ownership percentage of each party as well as a number of specifics such as whether a partnership is being created, how title will be held (generally as tenants-in-common), how expenses will be allocated, what happens if one party wants to sell but not the other, and how title is handled in the event of marriage,
Barrier #1 : Stagnant Income. With rates so low it might seem as though affordability would be sky-high but that’s not the case. On one hand national home prices have risen for more than five years straight while on the other hand incomes have stumbled and tumbled. “Stagnant wages have sliced the share of income collected by the bottom half of the population to 12.5 percent in 2014, from 20 percent of the total in 1980,” reports The New York Times. “Where did that money go? Essentially, to the top 1 percent, whose share of the nation’s income nearly doubled to more than 20 percent during that same 34-year period.” It may be hard to believe but the median household income in 2015 was actually 2.4 percent lower than in 1999 according to the Census Bureau. For many the financial situation is even worse: real wages for half of all workers were frozen between 1980 and 2014 – a period of almost 35 years – according to economists Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. Barrier #2 : Volatile Income. To make matters more complex, even those with jobs can experience significant monthly income variations. Such variations impact the ability to save. “Income volatility is the result of broad shifts in the labor market,” according to an April report in the Harvard Business Review. “As employment in the service and retail sectors has grown, and dynamic staffing policies have spread, more workers depend on income from commissions, tips, and hourly work with fluctuating schedules. The unemployment rate has been low (under 5 percent nationally), but that doesn’t necessarily create stable incomes: Half of the volatility we saw was due to variation in the size of paychecks within the same job.”
You either become house poor through a potential mortgage, if you can get one, and sacrifice other aspects of life, or you forego a home to have the other necessities of life. Even if you are creditworthy, these are tough choices that effect future wealth creation through equity, future financial stability, and quality of life.” BEN CARSON
SECRETARY OF THE U.S. DEPARTMENT OF HOUSING AND URBAND DEVELOPMENT
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JULY 2017 | ATTOM DATA SOLUTIONS
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