Energy-efficient homes reduce default risk

A first of its kind report was released last month that related home energy efficiency to mortgage default risk. Conducted by the University of North Carolina at Chapel Hill Center for Community Capital and the Institute for Market Transformation (IMT) the report proves that the more efficient the house, the lower the default risk. For each point on the Home Energy Rating System (HERS) index of efficiency, the risk of default drops. Loans on Energy Star homes are 32% less likely to go into default. The study examined actual loan performance data obtained from CoreLogic, the lending industry's leading source of such data. The study was restricted to single-family, owner-occupied houses whose loans originated between 2002 and 2012; a period spanning the mortgage crisis. Using a sample of 71,000 homes from across 38 states and the District of Columbia, the level of confidence is 99%. The researchers attempted to create a true apples-to-apples comparison by controlling for multiple variables. "We're going to similar homes in the same neighborhoods, with the same price, with the same credit scores of the borrowers," said Robert Sahidi, a co-author of the report's executive summary and the director of the Energy Efficiency Finance Policy program at IMT. "It's not like were picking somebody making $100,000 and comparing it to somebody making $50,000 with a lower credit score and a lower home price." According to Jeremy Sigmon, U.S. Green Building Council advocacy manager, "This study suggests a win-win-win. By fixing the blind spot to energy in Federal mortgage underwriting standards we could help borrowers to finance energy efficient homes and save on their energy bills, create jobs for builders and remodelers, cut pollution and reduce credit risks to lenders and taxpayers." Interestingly, a separate study was conducted by the National Association of Home Builders (NAHB) Economics and Housing Policy Group in 2012, based on a survey of home buyers nationwide. NAHB's publishing arm, BuilderBooks, released What Home Buyers Really Want, a study which outlines home buyers' preferences. Results from the study are available by age, income, race and census division, among other demographic characteristics. "This survey is a great resource for building professionals, as it provides an inside look at the things home buyers really want or don't want in their homes," said Rose Quint, NAHB's assistant vice president for Survey Research, and one of the study's authors. "With the housing market beginning to recover, and more consumers in the position to purchase a home, it is more important than ever for builders to be armed with this information." What do home buyers really want? First and foremost, energy efficiency. Some of the most wanted features involve saving energy, i.e. energy-star rated appliances and windows, and an energy-star rating for the whole home. Nine out of ten buyers would rather buy a home with energy-efficient features and permanently lower utility bills than one without those features that costs 2% to 3% less. One could only hope that armed with such positive and overwhelming data, municipalities and lending institutions would find ways to encourage both builders and homeowners to seek programs that significantly improve their homes energy efficiency. Vince Capogna, LEED AP ID+C, GPRO: O&M, CM, is the executive director of the Long Island Chapter of the U.S. Green Building Council and principal of Synergy Green Building Group, Inc., New Hyde Park, N.Y.