Experian recently conducted a survey of U.S. renters and their sentiments towards the prospects of homeownership. To help work through the outcomes, Digital Journal spoke with Michele Bodda (President of Experian Employer Services, Verification Solutions and Housing).
In the interview, Bodda provides some commentary on the survey, as well as her perspective on the importance of more modern approaches to close the homeownership gap.
Digital Journal: Over the last few years, a lot has happened in the housing market. How are consumers feeling?
Michele Bodda: Growing up, many of us dream of owning a house with a big yard and a swimming pool, while others may have dreamed of a home in the city. However, over the last decade or so, and more recently in the last few years, that dream might have felt a little out-of-reach with rising home prices and limited inventory. Despite these challenges, I think most people still aspire to be homeowners.
Interestingly, we recently surveyed more than 2,000 U.S. renters and nearly half believe they’ll be ready to purchase a home within the next four years, and that figure jumps to 67% over the next eight years. Much of the optimism is driven by the younger generations. Forty-eight percent of Gen Z non-homeowners and 50% of millennial non-homeowners believe they’ll be in a position to buy a home by 2029.
DJ: What role does the industry play in helping consumers become homeowners?
Bodda: All of us across the mortgage industry have a responsibility to help consumers realize the dream of homeownership. In addition to consumer sentiment about homeownership, our study identified some of the barriers consumers believe are standing in their way. Sixty-seven percent of U.S. renters feel saving for a down payment is the biggest barrier to homeownership, followed by home prices and low credit scores at 66% and 51%, respectively.
Based on the survey results, it all boils down to affordability. While down payments and rising home prices may fluctuate based on macroeconomic factors, low credit scores have a direct impact on the mortgage rates consumers may qualify for.
We also know that 61% of U.S. renters feel more financial support would be most useful on their homeownership journey, followed by a clearer understanding of what they can qualify for (51%), as well as more financial knowledge about the mortgage process (38%).
As an industry, we have a responsibility to be an educational resource for aspiring homebuyers and find ways to help improve their financial health. The mortgage process can be complex and overwhelming, and helping consumers become more confident in their financial position and how to navigate buying a home can make the transition to homeownership more achievable, to more consumers, more of the time.
DJ: How does the use of more modern credit scores benefit consumers and lenders?
Bodda: Credit scores and mortgage decisions are only as good as the data that powers them. While more traditional credit scoring models have been the foundation of the mortgage decisioning process for decades, they no longer reflect how consumers manage everyday finances. That’s part of the reason Federal Housing Finance Agency Director Pulte announced the approval of VantageScore 4.0 for the mortgage market.
This is an exciting time. Newer credit scoring models incorporate alternative data sources, such as rent, utilities and other predictive data elements, that offer lenders a more comprehensive view of a prospective borrower’s ability and willingness to repay outstanding debt.
But again, this is about more than just a score, it’s about the data that powers the score. Positive rental history is likely a strong indicator of a renter’s readiness to buy a home, and yet, for too long, on-time rent payments haven’t been factored into mortgage decisions. As the first credit reporting company to including positive rental payments on credit reports, we recognize how much of a gamechanger alternative data sources can be in improving consumers’ creditworthiness.
In addition to rent, we understand how transformative other data sources, such as cashflow data can be. In fact, cashflow insights, such as income, expenses and cash reserves, among other data elements, enhance risk assessments with up to 25% lift in predictive performance.
DJ: What makes you optimistic about the future of the housing market?
Bodda: We’re in a new era of the mortgage market and witnessing real progress to help make homeownership a reality for more consumers. As we look ahead, we’re excited and optimistic about how more modern scores and expanded data sets can help more consumers realize their financial dreams.
We have the data and technology to drive change in the market and participants across the industry are embracing that mindset. This backing, coupled with the industry’s commitment to leveraging modern data sources and innovative solutions is the best path forward to breaking down some of the historical barriers tied to homeownership.
