Energy Star Energy Star

There’s an odd thing going on in the housing market right now. But don’t worry, it’s not another bubble.  As Americans are building and buying more energy efficient homes, they are saving serious cash on their energy costs, meaning they have more income to distribute.  But lenders aren't taking energy efficiency into account when deciding whether or not to give a family a loan for a new house.  Now, it makes sense that if your house is more energy efficient than most homes then you would be saving more money than somebody with a conventional home and thus could more easily pay back your loan.  This week, the Institute for Market Transformation published the first study of its kind that shows a demonstrable difference in loan risk between energy efficient and non-energy efficient homes.

When comparing homes with an ENERGY STAR rating to those without any such rating, and controlling for age of home, price, size, relative house value, price of electricity, and a host of other variables, ENERGY STAR homes proved to be 32% less likely to go into default.   Stephen Lacy of Green Tech Media interviewed Nikhil Kasa, a researcher who worked on the study.  "We found that Energy Star certification reduces default and payment risk. The more efficient the house, the less the risk is for prepayment and default,[1]" he said.    ENERGY STAR is an energy efficiency index (and a rating program in which ABET participates).  Conventional homes are given a HERS number (Home Energy Rating System) of 100; the lower your score, the more energy efficient is your home.  ENERGY STAR certification begins at about 85.  The study found that for every successively lower point on the index, the risk of default drops. So what does this mean for you? Well to begin with, I hope it serves as proof that improving your home energy efficiency truly does save you significant amounts of money.  But for now, it doesn't mean much else.  Now that hard data exists on the issue, lenders and appraisers will start to take the trend more seriously, and hopefully in the next couple of years we’ll see lenders requiring home energy audits to help them determine which loans are safer to give than others.  If that becomes an industry standard, I can see higher demand for energy efficient homes on the market, and I would expect more homeowners to invest in energy efficient upgrades to existing homes to make them more salable   Hopefully, this will become a great positive feedback loop that will help spur energy efficiency in homes across America. Read the IMT report here: http://www.imt.org/resources/detail/home-energy-efficiency-and-mortgage-risks-executive-summary

[1] GreenTechMedia