Arguably, the most interesting conversation happening in the world of finance right now is rising mortgage rates.
As of this writing on Sept. 28th, 30-year mortgage rates clocked in at 7.83% – the highest levels seen in 22 years.
Before you say it, this ain’t the 1980s. The average household income then was ~$45,000 and average home cost was ~$85,000. Today? The average household income is $75,000 and average home cost is $495,000.
Incomes have not kept up with housing appreciation and now mortgages, for those who can even get them, represent nearly 40% of household incomes. One might describe that scenario in a word – fragile.
Bill Miller, famed investor from Miller Value Partners, shared research this week that we all intuitively know to be true: for US consumers in aggregate, the home is the most valuable asset.
Additionally, two out of three Americans own their house; within the top income bracket, over 90% own a house. (https://federalreserve.gov/publications/files/scf20.pdf…).
If we draw from this data that a smart financial goal for most Americans is to one day own a home, we are moving in the exact wrong direction.
How do we fix this?
Well, our bet is startups will.
While startups cannot directly alter the erratic monetary policy or fiscal spending that’s led to inflated prices and now rising mortgage rates (or can they?), dozens of founders are actively working on the housing affordability problem.
A few examples:
Does the startup theory still sound idealistic? Here’s a real example of a renter’s path to home ownership through value creation from just two of the above mentioned startups.
For the third year running, I attended our port co. Stake’s annual customer event last week in NYC. Three years ago, the event was hosted (more or less) in a garage so I was a bit surprised to find The Economist logos plastered on walls, the NYT present, the NHL and other mainstream outlets/corporations in the audience covering the event.
Stake delivers cash back and financial tools to renters via savings gamification, credit building, banking, localized discounts, education. Through these incentive mechanisms, they are able to deliver better property economics to landlords by improving collections, lease-ups, and delinquency rates.
On balance, they increase the savings of paycheck to paycheck renters by $450+ per year, while materially improving credit scores, and other financial wellness metrics by many multiples. It works because there’s an economic win-win for renters and property owners. And remember, you cannot solve a delinquency problem with credit.
Meanwhile, in September, the WSJ featured a newly birthed startup called Roam. Roam is looking to leverage a relatively unknown mortgage clause called ‘Assumable Mortgages’ offered under VA or FHA loans that would allow consumers to “assume” a seller’s low mortgage rate when buying a house, enabling buyers to find mortgages at 2.5% vs. 7.73%.
Through Stake and Roam’s value creation alone, a renter can find an onramp to banking, increase their savings materially, improve their credit score, access better financial tools and education, and secure a 30-year assumable mortgage at 2.5%.
In other words, a viable path to home ownership. Today.