Does Housing Counseling Work? According to a New Study by the Federal Reserve Bank of Philadelphia, Yes. (And So Does Homebuyer Education.)
This week, the Federal Reserve Bank of Philadelphia released the findings from its long-term study of housing counseling. Like other recent studies, the Philadelphia Fed study confirmed what the housing counseling community has always known: that housing counseling works.
Beyond the study’s actual findings, which we’ll get to shortly, the study is important because of some of its design features. First, the study standardized the content and delivery of the education and counseling, which addresses concerns that have been raised by some over a lack of consistency in the content and delivery of counseling in other studies. This was possible because the education and counseling was provided by a single organization, Philadelphia-based Clarifi.
Most importantly, though, the study used a randomized design in which participants were randomly assigned either to a control group, which received two hours of homebuyer education, or a treatment group, which received the two hours of homebuyer education as well as one-on-one counseling. This randomized design is important because it avoids the problem of self-selection, which is the idea that the kind of people who seek out counseling may already be more likely to have positive results and which some critics have used to cast doubt on some studies that have found positive impacts from housing counseling.
The study compared the control (education only) and treatment (education and counseling) groups before they received the counseling and/or education and again four years later on 3 metrics: change in average credit score, change in total debt balances, and change in delinquent payments. The study also broke out its findings for participants who purchased a home and participants who did not.
Change in Average Credit Score:
Participants who received education only saw an average increase in their credit scores of 8.5 points, while participants who received both education and one-on-one counseling saw an average increase of 16.2 points. The study concludes that “[o]ne-on-one counseling had a positive effect on the credit scores of both eventual homeowners and non-homeowners, with a relatively greater impact on treatment homeowners with one-on-one counseling.”
Change in Total Debt Balances:
The one surprise in the study was one of the findings with respect to the change in participants’ total debt balances, which appeared to diverge more based on whether the participant eventually purchased a home than based on whether or not the participant received education alone or counseling and education. Participants who did not eventually purchase a home saw their debt balance rise, on average, by $396 for participants who only received education and by $2,138 for those who received education and counseling. Participants who did eventually purchase a house saw their debt balance decline, on average, by $1,447 for those who received education only and $3,109 for those who received education and counseling. Clearly, the one outlier in this study is the relatively larger increase in average total debt balance for participants who received education and counseling and did not purchase a house compared to those who only received education.
Change in Delinquent Payments:
The study also looked at the number of accounts participants had that were 30-, 60-, and 90-days past due. On average, participants who only received education and did not eventually purchase a house reduced their delinquent accounts in 1 of the 3 categories (90-days past due) and those who did purchase a house reduced their delinquencies in 2 of the 3 categories (30- and 90-days). Participants who received both counseling and education, however, on average reduced their number of delinquent accounts in all 3 categories. This was true both of treatment group participants who eventually purchased a house and those who did not.