With lower housing costs and renewed income growth, Americans are once again moving up to homeownership, according to a Ford Foundation-sponsored study by the Joint Center for Housing Studies of Harvard University.

The improvement in the housing outlook, according to "The State of the Nation's Housing 1994," is taking place despite the spurt in interest rates.

William Apgar, executive director of the center, recently discussed the implications of the improved housing outlook for mortgage lenders.

Q.: What are lenders looking at in the current market?

APGAR: Our studies suggest that homeowning is on the rise in many parts of the country and this is good news for lenders. A lot of folks who had been on the sidelines because of the weak economy and high housing costs are coming back into the market.

As incomes improve, many people are paying down outstanding debts and improving their balance sheets. So they come to the lender with more favorable characteristics in terms of their existing debt.

Q.: Just how broad based is this new housing strength?

APGAR: This housing recovery is very regionally sensitive. Home sales and housing starts are very different in different parts of the country as will be the underlying mortgage demand that derives from home sales and construction activity. Some states last year had their best year in 15 years. National numbers are being depressed by weakness in California and the Northeast. But both of those areas now seem to be showing elements of recovery.

Q.: What about inner cities versus the suburbs?

APGAR: Much of the new construction that we forecast is likely to take place on the edge of existing metropolitan areas and much of the home sales activity will be in the suburbs. But we also see enormous potential for homeownership and mortgage lending in many inner-city areas. New immigrant groups are finding their way up the economic ladder and are now entering the homebuying age groups. That's a big plus.

We know discrimination has been a problem in many areas for years, but it seems like that's starting to turn. Some banks are beginning to understand that there are some good business opportunities out there.

Q.: How are lenders taking advantage of these opportunities?

APGAR: Many communities have experienced discrimination for years and some would-be buyers assume that if they come into a lending institution they won't meet with success.

Some of the most successful programs have been efforts directed at counseling and working through neighborhood base groups that help give borrowers the confidence that if they make the effort to apply for a loan they will be fairly treated.

Banks are using 'second-look' committees and community groups also are helping prepare borrowers to negotiate the difficult loan process.

Q.: So they have to aggressively go out and qualify buyers?

APGAR: Yes. Fannie Mae is advertising in cities across the country to encourage people to go to some of these community-based groups that are helping promote home ownership in lower- and moderate-income neighborhoods. They and others are also sponsoring homebuyers' fairs, where potential borrowers can get information from a wide range of mortgage lenders.

Q.: What sectors of the mortgage market are lenders focusing on?

APGAR: In terms of the strength of the market, clearly the largest number of buyers in the '90s are going to be people who already own a home. This, I think, is where the real energy is going to come from in the housing market.

A lot of existing homeowners, especially in parts of the country that didn't get hit very hard by the recession, are sitting on reasonably good equity in their existing homes. Their incomes have moved up, their families have grown, and they're both ready and able to make the move to a bigger home.

Q.: Could you put the recent interest rate rise into perspective?

APGAR: Certainly the affordability of homes for first-time buyers was greater when interest rates were in the 7% range, but even at today's rates, which are pushing 9%, that affordability still is relatively good. Income is up and growing and house prices have been stable.

So while it's not the all-time low in terms of mortgage interest rates, it's still a reasonably attractive time, certainly when compared to much of the double-digit experience throughout the '80s.

When we look at the whole equation - the consumer confidence, the income growth, the relative stability of home prices - we say higher interest rates are not a positive point but they are not going to kill this housing recovery.

Mr. Wiggins is a freelance writer based in New Jersey.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.