Housing data’s role in furthering affordable homeownership

The housing industry is at an unprecedented moment in time. The COVID-19 pandemic brought interest rates to record lows and spurred a $4 trillion purchase and refinance mortgage boom in 2021.

Rapid inflation not seen in 30 years followed, which caused the Federal Reserve to take action, moving interest rates to nearly double, leading to a projected $2.4 trillion in mortgage origination volume in 2022. Throughout this volatility, one constant has remained: the chronic and seemingly intractable deficit in single-family, 1–4-unit, entry-level homes for sale.

CoreLogic estimates that by the end of 2022, the United States will be facing a 1.2-million-unit shortfall impacting low-income families defined as 50%-80% of area median income (AMI) as well as moderate-income families defined as 80%-120% of AMI. This deficit greatly exacerbates the challenge of bringing equity to homeownership, particularly for low-to-moderate income (LMI) home buyers who are disproportionately people of color.

Data science for the good of affordable homeownership

Data science is the foundation of our business, and we know it can play a key role for policymakers as they address housing supply challenges.

For CoreLogic, data science means utilizing extensive data sources to apply innovative methods and models to form novel business knowledge that drives smarter business decisions. Comprehensive property data enables unique insights that help lenders to be more efficient in serving their customers and helps tackle the thorniest contemporary public policy challenges plaguing our industry.

We understand how important it is to employ data science as a social good, for our business, for the health of the housing ecosystem and U.S. economy. Given the deficit of single-family entry-level units for sale, we believe that data science can serve as a catalyst to bring industry participants together, delivering insights and actions that will help address the critical shortfall in entry-level homes for purchase by LMI homebuyers.

In particular, we highlight the partnership between CoreLogic, the Mortgage Bankers Association (MBA), the state housing finance agencies of Tennessee and Ohio, municipal housing leaders and other local stakeholders who are also committed to solving this challenge at the “grass-roots” level.

MBA Convergence, “is driving collective action with lenders, other industry participants and government partners to facilitate new solutions to our nation’s rental and housing affordability challenges. By using a cohesive approach, Convergence promotes more sustainable, affordable homes for purchase and rental for underserved people and communities, especially minorities and low-to-moderate-income (LMI) Americans.”

CoreLogic is proud to sponsor Convergence and lead the development of a novel solution to this thorny supply challenge. The solution combines evidence-based planning via a state-of-the-art business intelligence platform, coupled with collective action mechanisms, such as collaborative local stakeholder workshops.

The solution is designed to scale the production of single-family entry-level homes for sale in the Convergence pilot cities of Memphis, Tenn., and Columbus, Ohio. This solution is creating a “playbook,” which we’re confident is replicable in many of the roughly 8,000 governing municipalities across the US.

Through the Convergence work, participants have come to understand that one of the biggest barriers, especially for smaller, mission-driven local home builders, is time. The front end of the development cycle (from initial concept, to planning, permitting, and finally, a “shovel-ready” project) can take double-digit months or even years to complete. This lengthy cycle time is due to complications that arise as the home builder locally navigates what we refer to as the “four gauntlets.”

In addition to ensuring that the home builder’s housing designs are economically viable, they must also address:

• Equity and debt financing: Persuading banks and investors to provide residential construction financing for their projects as well as ensuring mortgage lenders can make affordable mortgage loan products available to the ultimate LMI owner-occupant.

• Subsidy: Obtaining and optimizing the allocation of scarce “gap” funding sources that assist the homebuyer, including home price buy-down, appraisal gap funding, down payment assistance, closing cost assistance, mortgage interest rate buy-down, and more.

• Zoning: Ensuring that proposed home designs align with the municipality’s zoning constraints and building codes.

• Community Opposition: Ensuring that civic association members or their proxies do not object to proposed home designs.

Compounding this challenge, engaging these disparate stakeholders often means navigating their varied, or at times competing, objectives. The longer the time spent by the smaller home builder to “run these gauntlets,” the longer it takes to obtain municipal approval for a new project start (i.e., getting shovel into the dirt).

This, in turn, creates a natural constraint on the number of annual new project starts that smaller home builders can initiate. To address these issues, via Convergence, we have facilitated a novel public/private partnership solution framework that depends on two critical elements:

1. Relationships: Forging the right relationships with local government officials to engender confidence and secure the support of key stakeholders to attend facilitated workshops where they meet, collaborate, and jointly execute on new single-family, entry-level homeownership development and financing.
2. Data Science: Evidence-based analysis utilizing the resources of a common business intelligence (BI) platform, with data, analytics, and models that stakeholders view as accurate and objective. The BI platform includes a machine-learning software model that ranks neighborhoods (census block groups) most likely to meet the collective criteria of the stakeholder coalition, including optimizing home designs based on marketability, cost to construct, quality of living, affordability to the LMI owner occupant, the likelihood of facing neighborhood resistance and the likelihood of a positive economic rate of return.

The Convergence Solution is ultimately a methodology that strategically aligns the efforts of local stakeholders. This alignment, enabled by trusted data science and collaborative relationships, results in the elimination of market dislocations (e.g., home valuation gaps) thus allowing future projects to operate in a more efficient market.

These target markets in Memphis and Columbus are experiencing a significant reduction in the cycle time and cost for local home builders to reach shovel-ready project status, enabling them to expand their capacity and build more projects annually, thus moving the needle on closing the undersupply of single-family, entry-level homes for LMI homebuyers.

Importantly, the Convergence Solution is replicable and scalable. It includes a playbook outlining how to execute the methodology from end-to-end and to make it programmatic and self-sustaining. We expect other local stakeholder coalitions to use the playbook to replicate this efficient, confidence-inducing approach to increase single-family entry-level housing supply in underserved neighborhoods across U.S. cities.

Beyond the competitive edge

For the last decade, we at CoreLogic have come to understand the competitive edge that comes from utilizing the latest in data science. However, we also understand the value data science has beyond the business imperatives of reducing time, touch, and cost. Everyone benefits from a healthy and robust market that provides LMI homebuyers access to a place to call home, which today can seem like an insurmountable struggle. The tools, capabilities and willpower exist to solve this affordable homeownership challenge.

We stand ready to continue our work across the housing market to ensure everyone can find a place to live in the community they call home.