Why this article matters: Since 2000, home prices have leaped past incomes, benchmarking a now clear generational shift for homeownership. The current administration seeks to tackle the price-to-income gap by loosening mortgage regulation — kind of like putting out a fire with gasoline.
The home price boom
Nationally, home prices have increased 207% since the year 2000 — and more in California. Compare this with the median per capita income increase over the same time of 155%, according to the St. Louis Federal Reserve Bank.
A shallow glance at the issue might leave you feeling optimistic: higher home prices mean more equity for existing homeowners, allowing them to sell more profitably, and enabling a higher level of net income for real estate service providers of all types.
But when the price of an asset — a home — exceeds increases in personal income, the negatives far outweigh the positive.
The Federal Reserve report attributes the steep rise in home prices to:
- insufficient residential construction due to obstructive zoning regulations and local agency administration interference designed to stop builders from rising to meet local housing demand; and
- generally falling interest rates before 2013, which allowed homebuyers to qualify for higher principal amounts (until rates hit a cyclical bottom in 2012, absent a pandemic-era dip in 2021-2022).
The result? Housing costs increased faster than incomes for low- and moderate-income earning households — the vast majority of homebuyers.
This led to a higher age of first-time homebuyers, increasing in age of first-time buyers by ten years since 2000. It also means fewer young households are choosing homeownership in the years ahead — an escalating trend long known to anyone involved in the sales of residential real estate during the past 20+ years.
However, a windfall developed for brokers who manage mid- and high-tier residential rental property, as more new and evolving households remain tenants.
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Mortgage deregulation directives
The federal government’s solution to high housing costs is to loosen mortgage regulations, which will presumably open the bank vault to flood households with funds for homeownership.
Assuming the federal administration is successful in its efforts to expand access to mortgage funds, home prices will near instantly rise in a rapid fashion (if that sounds familiar, recall the Millennium Boom, circa 2005, deregulation era of predatory teaser ARM mortgages and exploding home prices).
The present-day deregulatory directives include:
- directing the Consumer Financial Protection Bureau (CFPB) and Federal Housing Finance Agency (FHFA) to reduce appraisal requirements for low-risk transactions and lean on artificial intelligence for property evaluation instead of licensed appraisers — which will bar all efforts to bring youth into the licensed appraisal occupation while encouraging MLOs and their bankers to lend without concern for the value of the property ensuring repayment on default;
- directing the U.S. Department of Veteran Affairs (VA) and Department of Housing and Urban Development (HUD) to ease up on appraisal standards — which will increase the present year-over-year rise in defaults on government guaranteed mortgages, the bulk of the home mortgages originated by MLOs;
- revising federal supervisory oversight and guidance to look the other way on lender actions that violate technical or process requirements;
- reducing instances where civil penalties are imposed on banks violating consumer financial laws, part of the current administrations aggressive effort to “de-fang” the CFPB which polices the application of lending regulations to protect consumers from present and future harm inflicted by lender practices; and
- amending Regulation C to exempt smaller banks from Home Mortgage Disclosure Act (HMDA) reporting requirements.
Further, the administration is directing the CFPB to consider:
- widening the scope of qualified mortgages (QMs) to allow more types of mortgage loans to meet QM safe harbor standards — which includes extended amortizations to literally “never” pay off principal, just accrued interest payments to lenders;
- reducing underwriting requirements for QMs and mortgages that meet ability-to-repay (ATR) standards — which automatically creates the 1978 and 2005 “ZAP” mortgage of zero ability to pay when originated;
- reducing the number of days required to pass between delivery of the Loan Estimate, Closing Disclosure and closing by the Truth in Lending Act (TILA) / Real Estate Settlement Procedures Act (RESPA) Integrated Disclosures (TRID) regulations;
- increasing digital access to mortgage rescission — a nothing-burger bit of chum; and
- removing the three-day post-closing consumer right to rescission for cash-out and rate-and-term refinances.
The message: Make it easier to lend to unqualified buyers. If that sounds familiar, recall the last and most recent financial crisis, Great Recession of 2008 and foreclosure crisis that followed the Millennium Boom.
Related article:
Mortgage Concepts: The birth of the adjustable rate mortgage (ARM)
Mortgage deregulation is never a solution
Instead of relaxing qualification requirements and making it easier for lenders to hand money to unqualified buyers, why not just make it easier for builders to respond to the ever-growing demand for new housing? Consistent inventory additions will keep the purchase price for all homes sold at a level of 1/3rd of a buyer’s gross income with a 30-yr FRM, as existed prior to the current century.
The reasonable solution to today’s home-price-to-income gap is simply more housing.
Supply-and-demand is one of the most basic tenets of economic principles because it makes sense: when demand for housing is high, supply needs to rise to meet this demand. The alternative is what occurred over the past 20+ years: housing prices rise beyond the typical household’s ability to pay for lack of available homes for sale, and a shrinking homeownership base.
In 2025, California home prices finally experienced a stable year, with incomes essentially matching home price movement. To make a lasting impact on housing costs, we will need many more years of stability ahead in rising wages and flat home pricing — not a return to the lending era that led to the Great Recession period of 1.1 million home foreclosures in California alone.
