Energy-Efficient Homes Less Likely to Default reports Designers Wallpaper

(EstateNewsWire.com, April 02, 2013 ) Toronto, Canada -- According to a new report from the University of North Carolina – Center for Community Capital, energy-efficient homes are 32% less likely to default on mortgages. The study was funded by the Institute of Market Transformation group.

The study, “Home Energy Efficiency and Mortgage Risks,” is now the first to attempt a quantification of connectivity between home energy efficiency and default risks. The report was published in The Atlantic Cities.

The study looked to the national sample of over 71,000 Energy Star and non-Energy Star-rated single-family home mortgages and it examined loan performance data that was attained through CoreLogic. It controlled within the study to note size and age of the house, average income with the neighborhood, house value relative to the area's median, and the local unemployment rate, as well as borrower credit scores, and loan-to-value ratio. The findings were consistent across many home models.

The report also found that the more efficient the house, the lower the default risk. Each point decrease on the Home Energy Rating System was associated with a decrease in risk-of-default by 4%, according to the research numbers.

There were two groups of houses analyzed as comparable: The average price of a non-Energy Star homes in the study was noted at $218,461, and $221,919 for Energy Star homes. Each of the homes were located within areas that had average incomes near $73,00 and unemployment near 6.4%.

Over a third of houses in the sample were Energy Star-rated, with the rest placed in a control group. The Energy Star houses turned out to also be a one-quarter less likely to prepay, along with less chance of defaulting.

The big question is does the saved money on energy cost account for the homes lower default risk by itself? “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,” Cliff Majersik, executive director of IMT, was quoted saying on UNC’s site. “We long believed this to be the case, and now this study proves it. Successful housing market reforms will require reconsidering the risk factors in mortgage default, including energy costs.”

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