by Roberta Fuchs
President Barack Obama’s decision to weather a Republican backlash and reform immigration regulations could have a significant impact on the housing market.
In allowing millions of undocumented residents to work legally and avoid the threat of deportation, Obama is opening a door to a sector of society formerly living in the shadow economy.
The question remains, however, if the framework to accommodate these potential homebuyers is in place.
Mortgage access difficult
Mecklenburg County’s growing service-based economy, year-round employment and its need for workers across occupational spectrums has traditionally lured foreigners to the area. Immigrants make up 13.6 percent of the county’s population, according to a 2014 research study by UNCC for the Mayor’s Immigrant Integration Taskforce.
Nearly 52 percent of the 129,000 total are Hispanic, with the rest coming mainly from Asia, Europe and Africa. The median household income is $54,417, which is 3.9 percent lower than the county’s U.S.-born median income of $56,602.
Immigration reforms “will definitely boost demand for single-family homes,” said Natalia Siniavskaia, a housing-policy economist for the National Association of Home Builders. She said most immigrants are renters upon arrival to this country, but that ownership rates increase rapidly with the length of stay here. New immigrants to this country between 2012 and 2022 are expected to account for 900,000 new homeowners, according to Siniavskaia’s report, Immigrants and Housing Trends.
She said, however, that the ability to qualify for a mortgage is central to gaining a foothold in the market.
Currently, any foreign resident or nonresident can buy a home in the United States – as long as it is paid for in cash. The government offers Social Security numbers to those lawfully admitted to the United States to work, allowing them to obtain the credit history and necessary paperwork to apply for a mortgage.
Then there are those immigrants in limbo, including dependents and spouses, foreign students, and residents that have overstayed their visas or entered the country without authorization.
“If you’re undocumented and without a Social Security number, it’s hard to establish credentials,” said Jacob Vigdor, the Daniel J. Evans professor of public affairs at the University of Washington in Seattle. “If you want a house, you’re going to find it hard.” Enter the Internal Revenue Service, which supplies individual tax identification numbers to resident and nonresident foreigners as a way to increase its tax base. While the ITIN does not provide legal status or the right to work, it can ease the way to getting a driver’s license or opening an interest-bearing bank account.
Higher interest rates
Many undocumented individuals who have looked to buy a house opt for ITIN mortgages, says Jason Madiedo, president of the National Association of Hispanic Real Estate Professionals.
ITIN financing companies will accept nontraditional credit histories, such as rental agreements, car loans, and utility and cell phone bills. However, they often require a 20 to 30 percent down payment. There is no securitization or secondary market in which to sell the mortgages, so lenders often charge up to double the current average interest rate of around 4 percent. On a $150,000, 30-year fixed loan with 8 percent interest, the borrower would pay $1,101 per month to the lender, amounting to $246,229 in interest over the life of the loan. That compares to $716.12 per month in payments, with interest of $107,805, for a 4 percent traditional fixed-rate loan.
“We’re pretty excited about a path to residency,” Madiedo said. “The impact that would make in housing and ancillary services would be huge.”
Last year, the U.S. Congress bandied about an overhaul of immigration laws that included a conditional path to citizenship for many of the estimated 11 million immigrants living illegally in the U.S. At the time, NAHREP estimated that reforms would create a pool of 3 million looking to buy homes and pump more than $500 billion into real estate transactions over five years and an additional $233 billion in origination fees, real estate commissions and consumer spending associated with homeownership. Although the Senate’s bill never got past the House of Representatives, Madiedo has high hopes for Obama’s plans for reform.
“It would be like a steroid injection to boost the economy,” he said.
Still, problems remain.
Barriers still stand
After the housing crisis, tight standards calling for lower loan-to-value ratios, higher down payments and increased credit scrutiny made it more difficult for many to buy a home.
But perhaps the biggest barrier to the American Dream is a lack of inventory and cash sales, says NAHREP. Before the market went bust in 2008, sales of single family homes to institutional investors were virtually nonexistent, the organization says.
In a March 2014 survey of real estate agents and mortgage originators, NAHREP found that agents continued to report that first-time homebuyers frequently lost out to investors who pay cash for homes, rent them out and then seek to sell them at a substantial profit. In major Hispanic markets such as Miami, 13 percent of home sales went to institutional investors and 66 percent of available housing inventory was sold for cash last year, NAHREP reports.
In the Charlotte-Concord-Gastonia area, homes sales to institutional investors, which had been falling since mid-2013, rose both quarterly and annually in the third quarter 2014, resulting in Charlotte being the second-most active market for such sales, according to statistics released by RealtyTrac.
Among areas with populations greater than 500,000, only Memphis, Tenn., – which includes northwest Mississippi and eastern Arkansas – had a greater share of institutional investor purchases, at 16.4 percent, but that was down from last year’s 20.3 percent.
In the third quarter, 14.2 percent of Charlotte area home sales were to institutional investors, defined as entities that buy at least 10 properties in a calendar year. That was up from 11.6 percent in the second quarter and 13.4 percent in the third quarter of 2013.
Much of the increase in the Charlotte area was in Gaston County, where institutional investors accounted for 18.4 percent of all home purchases in the third quarter, up from 12.1 percent the previous quarter and 17.8 percent in third quarter 2013.
In Mecklenburg County, sales to institutional investors were down to 12.5 percent of all homes sold from 16.9 percent in the second quarter and 19.9 percent in third quarter 2013.
Institutional investors, including Blackstone’s Invitation Homes, Tricon Capital Group and American Homes 4 Rent, have bought several thousand homes in the Charlotte area over the last few years.
In 2001, less than 1 percent of all home sales nationally were to such groups.
The concern remains that institutional investors’ grab for market share can artificially inflate prices for those seeking to buy a home while creating swaths of rental properties in one area. In addition, a sell-off of investor properties could destabilize prices for those seeking to sell their homes.
Meanwhile, Madiedo says, the real estate sector should diversify to help boost immigrants’ access to home purchases.
“There are not enough people of color in mortgages or real estate to accommodate (immigrants),” he said. He cites Maurice Jordain Earl, managing director at fair-lending consultant ComplianceTech, describing a large group of mortgage bankers at a Las Vegas conference as looking like, “a sea of salt with a few specks of pepper.”
Madiedo says it’s important to remember that few in the United States are more than five generations away from being an immigrant. Madiedo’s advice for realtors: “Get into the Hispanic market. You don’t have to, but you should if you want to be in business over the next five years.”