This report about the struggle millennials face in purchasing homes include numbers about how many young adults owned homes in the past:
Last year 32.3 percent of young people were homeowners, a slight increase from 2016 when it was 32.2 percent.
That’s still well below the 45 percent in 2005 and the peak of 55 percent in 1980.
While the report goes on to offer reasons why millennials have a hard time purchasing homes (short answer provided: student loans), the trend downward from 1980 is notable.
Or, perhaps we should think about it another way: perhaps 1980 was more unusual. This followed several decades of post-World War II prosperity and was before housing values rose significantly in many places. There was plenty of inequality but homeownership was within the reach of just over half of people just starting adult lives. Will we ever reach those levels again?
A new statistic hints at the shift of homeownership from having a piece of private property to the home as an investment: Americans have nearly $6 billion in home equity.
Homeowners now have a collective $5.8 trillion in tappable equity, the highest volume ever recorded and 16 percent above the last home price peak in 2006. The average homeowner with a mortgage gained $14,700 in tappable equity over the past year and has $113,900 available to draw. This is the amount over and above 20 percent of the value of the average home…
More borrowers are doing cash-out refinances, even at a higher interest rate, because they are leery of the variable rates on HELOCs. But overall, just 1.17 percent of available equity was tapped in the first quarter of this year, the lowest amount in four years. Why? They may not know just how rich they are.
What good is an investment if the owner is not cashing in on it? Seriously though, suggesting that Americans are sitting on a pot of gold – their own homes – is an odd proposition. Should they all sell at once? Already, some have wondered what happens when large numbers of Baby Boomers want to be out of their homes. All get home equity lines or credit or cash out refinances? This could drum up more business for lenders but may not necessarily be good for the homeowners. Or, the as the article hints at, what if housing values drop after large numbers of people tap into their equity? We have seen what can happen there by looking back at the late 2000s with many foreclosures and underwater homes.
All together, all that equity may actually be fairly hard for everyone to benefit from.
Discussion of a looming housing bubble hints at similar factors to the problems of the 2000s:
The number of FHA-insured borrowers who are behind on mortgage payments has jumped, Wade wrote in her testimony. The use of down payment assistance is up. The frequency of FHA borrowers who are spending more than 50 percent of their income on debt payments has increased, too. And the number of borrowers refinancing their homes to take cash out for other uses has swelled…
After years of tight credit in the aftermath of the Great Recession, both conventional mortgage lenders and the FHA have been easing credit standards — allowing for low down payments, for example, or higher levels of borrower debt — to lure first-time and low- to moderate-income buyers back to the housing market, industry observers say. By making it easier for these groups to obtain mortgages, the observers argue, it is only natural to see a modest uptick in missed payments — especially by FHA borrowers — after almost seven years of steadily dropping delinquency rates.
Not all market observers are convinced that these changes are OK. As federally sponsored mortgage giants Fannie Mae and Freddie Mac, as well as the FHA, have introduced these easier credit requirements to promote more homeownership, some critics worry that the mortgage industry could be headed toward dangerous territory if it continues to become easier to get a mortgage — especially amid what Edward Pinto, a fellow at the conservative think tank American Enterprise Institute, currently calls the “Housing Boom 2.0.” By allowing borrowers to take on more debt or put less money down on a house in today’s super-charged real estate market, observers such as Pinto argue, lenders could be setting themselves up for higher rates of borrower default in the event of a recession — something that Pinto believes is not too far off…
To be sure, observers such as Nothaft add, the current easing of today’s requirements is nowhere near where it was a decade ago. Leading up to the recession, lenders were allowing borrowers to provide no documentation of their finances and granting loans with no money down.
Given the fallout and long recovery time after the burst housing bubble of the late 2000s, few policymakers or lenders would want a repeat. Yet, there are some significant differences in the housing market right now:
- Prices may be up and demand may be high but fewer people are participating in buying and selling homes.
- Home construction is not at the same level as it was through the 1990s and early 2000s.
- Lenders are not quite providing mortgages with the same terms they had in the 2000s (as noted above).
- Homeownership in the United States is at relatively low levels: 64.2% in the first quarter of 2018 after even lower figures in previous years.
All together, this suggests that the scale of a new housing bubble would be smaller than the last one. Perhaps significantly smaller. Fewer buyers, sellers, and lenders got caught up in the rising housing values (and low interest rates) of recent years.
This does not mean that there would not be pain if housing prices and lending collapsed a bit. But, the consequences would simply exacerbate some of the issues various interested parties have discussed:
- If prices decrease, even fewer people might be willing to sell their homes. This drives supply even lower.
- How much lower could interest rates really go? How much profit could lenders generate?
- This could decrease motivation for builders and developers, particularly at the lower ends of the market where there is already significant demand.
The conditions and consequences of a housing bubble today or the next year or two could be very different than the economic crisis we now think we have some handle on from the late 2000s.
It is the time of year around here when dandelions are sprouting now that we have some warmer weather and rain. If you walk, bike, or drive around, it is not hard to spot stark differences between yards with no dandelions and those with a lot of dandelions. Here are some quick connections between the number of dandelions and social class:
- There are certain expectations in the United States, particularly in suburbs, about lawns. Americans are obsessed with lawns: it must be green (even under drought conditions), of a certain height (lest you violate local ordinances), and free of weeds. It is big business to help Americans keep their lawn looking good. Residents experience pressure from neighbors to keep their lawn nice. Even senators can be attacked for not keeping their lawn in a way that pleases the neighbors.
- Those with more money can more easily (a) pay for lawn care and treatments as well as (b) pay for lawn care products that they apply themselves. It is not necessarily cheap to keep a pristine lawn. It is not just a matter of avoiding dandelions but having lush greenery all around, consistency in the kind of grass, and a regularly manicured height.
- A nicer and larger lawn is connected to wealth and social class. It is a signal of the homeowner’s ability to tame and maintain nature. It supposedly shows they care about their property. It suggests they want to present a tidy image, which is always connected to property values.
- As a test of numbers 1-3 above, imagine trying to sell a decent priced house in a major metropolitan area where the yard is just covered in dandelions. Even if the house is in good shape, wouldn’t all those dandelions harm the image of the home? How many realtors would want to present an image of a lawn filled with dandelions to prospective buyers?
- Homeowner’s associations for townhouses, condos, apartments, and houses tend to do a good job of keeping dandelions in check. I assume this has to do with keeping up a positive appearance for the community. Fewer dandelions means a better image, more exclusivity, and higher rents or prices.
- The landscaping on our campus tends to look really good around graduation time when plenty of families and visitors are in town. The dandelions are largely in check.
In sum, I would suggest that the dandelion-free yard is yet another American status symbol. Just as people passing by might infer the social class of residents based on the size of the dwelling and the exterior appearance and the cars in the driveway, the number of dandelions may be used as a marker of social class.
(There certainly could additional factors that influence the number of dandelions in the yard. In addition to resources as noted above, addressing the dandelions requires time and physical ability which could be in short supply for a variety of reasons.)
Can comparative data about owning cars and homeownership in the United States help us think about how the two together help define a unique American way of life?
The data across countries suggest Americans are world leaders in owning vehicles and not so high on the list of homeownership. Few countries have more vehicles than us but over forty have higher percentages of homeownership. Yet, put these two features of life together – driving and owning a home – and they create something fairly unique in the United States.
To start, it is not just that Americans have a lot of vehicles: daily life and spaces are structured around these vehicles. For most Americans, getting to the places that are required for daily life – work, food, school, recreation – requires a vehicle. This is seen as normal and we have adapted in unique ways to this including developing fast food and big box stores (both could not exist in the same way unless people have their own vehicles, and often large ones at that, to operate). It does not have to be this way and indeed many other industrialized countries are not as dependent on vehicles for these daily activities.
As for homes, the availability of cars plus a desire to have a private single-family homes means that Americans are pretty spread out. This way of life reaches its apex in the American suburbs, which range from denser communities where driving involves shorter distances to places on the metropolitan edges where significant driving is needed for every major activity. This suburban form already existed to some degree before cars with the help of trains and streetcars. But, the availability of cars to the public in the 1920s really helped boost suburbanization as did subsequent decisions by different bodies of governments and others to promote an automobile-based society.
Critics of this way of life are plentiful even as we are nearing one hundred years of this arrangement. For more than a third of the existence of the United States, the goal of many is to own a vehicle and a home. To change this would require significant adjustments in a variety of areas. Imagine an America with smaller car companies (think of everything from the economic ripples to what commercials would replace auto ads on TV) or fewer fast food restaurants or no new sprawling suburban developments. We can see the resiliency of car and home narrative still: even as fewer than two-thirds of Americans own their dwelling (with more recent drops after the fallout of the housing bubble plus rising housing costs in certain places), it is still the goal of majority of residents (including younger Americans) and is said to be worth aspiring to. When the economy picks up, it seems Americans return to purchasing cars and homes.
Either cars or homeownership separately may not be enough to mark a unique American lifestyle. Put them together and they shape an entire society of over 300 million people.
Homeownership, like owning a car, is often viewed as a key feature of American life. Here is some comparative data on homeownership across countries:
- The United States is nowhere near the top of this list. It is #42.
- There are a number of less wealthy countries that have significant higher rates of homeownership than the United States.
- And this is even with a federal government that subsidizes homeownership and a strong cultural ideology (examples here and here) promoting homeownership in the United States.
- This is a reminder that fewer than two-thirds of Americans own their dwelling. Even if it may be a goal of many Americans, not everyone has the resources or opportunities to reach that goal. And the differences in access to homeownership across groups can be stark.
- Comparing rates of homeownership may not tell the whole story of what kinds of homes are owned or the size of these homes. Famously, the United States has the largest new homes in the world. So perhaps Americans do not just want to own a home; they want a certain kind of home – a sizable single-family home in the suburbs – that meets their standards.
One side effect of the rise of single-person households in the United States may be that it takes many people longer to purchase a home:
Assuming buyers saved 10 percent of their income every year, it would take a single buyer 11 years to sock away enough for a 20 percent down payment on a typical U.S. home, versus less than five for couples. To crunch the numbers, Zillow used income data from the Census Bureau’s 2016 American Community Survey and Zillow’s own 2016 home value data; the 20 percent down payment was calculated based on the most expensive home a household could afford.
The analysis reveals that a single homebuyer in Chicago has to save 10 years for a down payment compared with four years for a couple…
Those numbers alone shape a dismal view of homeownership, but couple them with this statistic, and for women, it gets bleaker: Single men are able to afford a larger share of U.S. homes than single women — 52 percent vs. 39 percent…
Despite inventory challenges, it’s important to note that single buyers aren’t necessarily looking at the same homes that couples might be eyeing. Couples may want the yard and be willing to look for residences in the suburbs, while singles may not be willing to lose the amenities that city living offers. And Dantzler, the broker, adds that there are still starter homes out there for single buyers. Just keep in mind that “starter home means different things for different people,” she said. Also, singles exploring homeownership may want to look into low-down-payment home loans, such as the Federal Housing Administration loan that allows for a 3.5 percent down payment.
The single-person household may be popular because one gains autonomy but this may come with a cost: a financial cost. A couple can pool resources and accumulate wealth more quickly. Could the recent drop in homeownership in the United States be tied in part to more people choosing the single life and not having as many resources for a home?
Of course, perhaps the dream is really to be a single-person household with a high income or lots of wealth so one does not need roommates…