national income have been trans- ferred from the bottom 50% to the top 1%. The top 1% income share has made gains large enough to more than compensate the fall in the bottom 50% share, a group de- mographically 50 times larger.” Debts. While income has stalled for large segments of the popula- tion debts have soared. For home- owners, the news is good. Mort- gage debt went from $9.85 trillion in the first quarter of 2009 to $9.65 trillion ten years later, a drop of $20 billion despite soaring home prices according to the Federal Re- serve Bank of New York (NY Fed). But, during the past ten years, non-mortgage debt – borrowing for student loans, auto purchases and credit card bills – increased from $2.68 trillion to $4.02 trillion. According to Robert Dietz, the NAHB’s chief economist, “we are watching two sources of debt that are delaying home buying: student loans and auto loans. Student loan growth has been significant over the last decade, and now totals more than $1.5 trillion. Auto loan growth has picked up since 2013. While student loans can often lead to higher lifetime income (in the form of a college degree), there are too many students attending college, accumulating student loans, and now attaining a degree. This is a social policy failure, and a Federal Reserve study indicates that such student loan burdens are responsible for about 20 percent of the ‘missing homeownership’ among younger households. Auto loan debt is also a concern because of recent trends in terms of longer loans and smaller down payments.” For just credit cards alone, says Axios, “U.S. card holders are expected to pay $122 billion in in- terest charges in 2019. That's 12%

THE MISSING BUYERS It used to be that first-time buyers routinely represented 40 percent of all existing home purchases, if not more. Part of the problem, according to the Urban Institute (UI), is that mortgage standards have hardened. The Institute estimates that if we stuck with 2001 qualifying requirements, an additional 6.3 million loans could have been originated be- tween 2009 and 2015. If we figure that 42% of those mortgages might have gone to first-time buyers (the first-time buyer percentage for 2001) then an additional 2.6 million sales might have been produced, a figure similar to Genworth’s. Or maybe not. The economy has radically changed during the past few decades and quaint notions of em- ployment, affordability and borrowing capacity need to be re-thought. Income. According to the Census Bureau, median household income reached $61,372 in 2017 – up 1.8 percent in a year. In 2017, the infla- tion rate was 2.1%. In other words, in 2017, people had more cash in- come, but those dollars lost buying power, or they bought a touch less than the smaller incomes earned in 2017. Corrected for inflation, the median household income was $58,609 in 2001, meaning that over a period of 16 years there has been very little income growth. However, general figures don’t tell the whole story. According to a 2016 study by economists Thomas Piketty, Emmanuel Saez and Gabri- el Zucman, not everyone is sharing higher incomes. “The top 1%,” they write, “used to earn 11% of national income in the late 1960s and now earns slightly over 20% while the bottom 50% used to get slightly over 20% and now gets 12%. Eight points of

more than what they paid in 2017 and 50% more than what they paid as recently as 2014.” Such credit card charges, of course, represent dollars that could have been used to bulk up savings, pay down debts, or fund the down payment on a home. For lenders, the increasing- ly-bleak combination of stalled incomes and soaring debts make loan approvals enormously diffi- cult. How can first-time borrowers with massive debts qualify for financing under traditional stan- dards? In many cases the answer is that they can’t unless underwriting norms are stretched. HUD says almost a quarter of the new FHA mortgages it insures now have debt-to-income (DTI) ratios above 50%. On average, the DTI for FHA purchase mortgages in FY2001 was 37.68% versus 43.09% in FY2018. Freddie Mac, through its Home Possible program, will now accept DTI ratios “generally up to 50%,” a standard which, it acknowledg- es, exposes the organization “to increased mortgage credit risk.” In 2017, Fannie Mae updated its Desktop Underwriter (DU) system to accept certain loans with debt-to- income ratios of as much as 50%. Subsequently, in 2018, Fannie Mae established additional stan- dards to limit its acceptance of riskier loans, those with high LTVs, multiple delinquencies, debt-to- income ratios above 45% and small or nonexistent reserves. The Gig Economy. The quickie definition for a “job” used to be 40 hours a week plus benefits. That definition is no longer so certain. The government explains that for its purposes "people are classified as employed if they did any work at all as paid employees during the

reference week; worked in their own business, profession, or on their own farm; or worked without pay at least 15 hours in a family business or farm." The gig economy is here and the key benefit, according to the Society for Human Resource Management (SHRM), is that workers “have greater control over their schedule and they can avoid routine annoy- ances such as bad managers, office politics and interminable staff meetings. They also might learn new skills and gain valuable experi- ence at a temporary stint, ultimately giving them the tools to advance in other gigs or in staff jobs.” Employers also get benefits. They have the ability to hire workers when and where they want without the need to pay for unemployment insur- ance, Social Security, health insur- ance, vacation time, or retirement. We have mortgage lending expe- rience with gig workers, what we used to call the self-employed. Any number of fields traditionally have large numbers of sole-practitioners – think of locksmiths, plumbers and lawyers as well as the old-standbys such as freelance writers, design- ers, and photographers. What’s different now is that we don’t know where a wider gig econ- omy might lead. Will gig employ- ment produce steady wages and bigger incomes? Or less money? So far the results are mixed. The JPMorgan Chase Institute re- ports that between 2013 and 2017, that monthly income went up for non-transport work (+1.9%), selling (+9.4%) and leasing (+69%), but fell for transport workers such as part- time drivers (-53%). A related issue concerns income stability. Both an employee and a gig worker might earn $60,000 a year. However, while the employ-

14 | think realty housing news report :: august / september 2019

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