A new study quantifies for the first time the link between energy-efficient homes and mortgage risks, suggesting owners of Energy Star-certified houses are less likely to default on their home loans than members of a control group.
The study, conducted by the University of North Carolina at Chapel Hill’s Center for Community Capital and the Institute for Market Transformation (IMT), a nonprofit organization dedicated to promoting energy efficiency, sends a strong message about the extended benefits of green building practices and why they should be embraced across disciplines. At Maracay Homes, a home builder with Energy Star-certified homes in all of our residential communities, we consider this news a win for energy-efficient construction.
Researchers evaluated a national sample of 71,000 single-family home loans issued between 2002 and 2012. About 35 percent of the houses in the sample were rated for efficiency by Energy Star, with the rest assigned to a control group. Controls included size and age of the house, neighborhood income, loan type and price of electricity, among other factors.
The results: the odds of a mortgage default on an Energy Star residence proved to be one-third lower than those of a home in the control group. Furthermore, mortgage holders on Energy Star houses were 25 percent less likely to prepay. Mortgage lenders consider prepayment a risk because they’re not realizing the full expected stream of payments and interest rate return.
Can saving home owners money on energy costs completely eliminate default risk? Probably not. But study authors believe it definitely helps reduce the incidence. “It stands to reason that energy-efficient homes should have a lower default rate because the owners of these homes save money on their utility bills and they can put that money toward their mortgage payments,” said Cliff Majersik, executive director of IMT, in announcing the study’s findings. “We long believed this to be the case, and now this study proves it.”
Andy Warren is President of Maracay Homes, the Arizona subsidiary of the Weyerhaeuser Real Estate Company. He serves on the Board of Directors for the Home Builders Association of Central Arizona and Greater Phoenix Leadership; as well as the Board of Directors and as an Executive Committee member with the Greater Phoenix Economic Council. He is also an active member of the Urban Land Institute.