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New Orleans Ann Carpenter works with the Federal Reserve Bank in Atlanta. Her work in understanding the challenges and predation for lower income families trying to buy homes has been outstanding. Almost exactly two years ago, the ACORN Home Savers Campaign met with her in a conference room at Georgia State University in an amazing meeting in which she shared her insights from the data research, and we shared what we had learned on the doors as organizers with the help of GSU social work students. We have eagerly awaited seeing her full report which has now been released with co-authors Taz George of the Fed in Chicago and Liza Nelson with the Cleveland Fed.
In their report, entitled “The American Dream or Just an Illusion? Understanding Land Contract Trends in the Midwest Pre- and Post-Crisis,” they invaluably look at the prevalence and impact of land contract sales by individual families rather than institutional investors in communities of color, low income communities, and distressed housing markets. Accessing a huge database, they were able to focus on the years since the recession in six states: Michigan, Ohio, Wisconsin, Minnesota, Indiana, and Iowa.
You’re not going to read their full report, but here are the highlights:
- Land contracts are still the wild west where families without access to other credit sources have little protections. They found that Florida, Maryland and Oklahoma have protections equivalent to standard mortgages, while Texas, Illinois, and Ohio offer some level of protections after a certain percentage of the contract is fulfilled including return of down payment and repair investments in some cases.
- Their database showed that 69% of land contracts were in these six states with Michigan holding 25%, Ohio 13%, and Wisconsin 11%.
- They caution that though these states require recording, this data likely understates the level of land contract activity, reflecting perhaps at most only 25% of actual transactions.
- The median level for land contract sales was $74,000 with more than 70% at less than $100,000.
- 45% of the sales were less than half of the price of standard mortgage sales in these markets after the recession.
- In Wayne County, containing Detroit, 49% of the contract land sales were less than $53,000 in 2005 and increased to 57% in 2016, and credit narrowed. A report chart showed that contract sales where overwhelming compared to banks’ sales under Home Mortgage Disclosure Act (HMDA) reporting.
- The report shows that land contract sales are dominating the market for $50,000 or below sales price homes.
You get the message. This is bad business. Carpenter and her co-authors were Federal Reserve careful in coming to rash conclusions, but even the most cursory reading underscores the fact that lower income families trying to access home ownership at the lower end of the market that they can afford are still being deserted by the banking and normal credit system and herded into land contract sales lacking better, cheaper, and more secure options.