Higher home values may be good for many yet reduce the number of new homeowners

Rising home values are often seen as a good thing as homeowners dream of seeing a strong return on their housing investment. Yet, these higher values may just discourage renters from buying a home:

Renters are avoiding buying a home mainly because house prices are soaring. Just 52 percent of renters surveyed in a National Association of Realtors quarterly report said they feel now is a good time to buy — that is down from 62 percent of those surveyed one year ago…

More owners, 71 percent, think selling is a good idea today, up dramatically from 61 percent a year ago. There is so little supply on the market that homes are selling at the fastest pace on record. Great, if you’re a seller, but it begs the question: Why are so few homeowners listing their homes?

“They’re either content where they are, holding off until they build more equity, or hesitant seeing as it will be difficult to find an affordable home to buy,” said Yun. “As a result, inventory conditions have worsened and are restricting sales from breaking out, while contributing to price appreciation that remains far above income growth.”

Affordability is the culprit for both current renters and homeowners. Less than half of all respondents said homes are affordable for buyers. Of course, there are regional differences, with more saying homes are affordable in the Midwest and less saying so in the West.

The housing market often swings back and forth between buyers and sellers. Yet, we have several longer-term problems at play here:

(1) New homeowners having difficulty entering the market (coming off a burst housing bubble with fewer financial resources, millennials with other financial commitments, etc.).

(2) Perhaps shifts in how many younger Americans want to buy the same kinds of homes that are available (though some of this may be overblown).

(3) Housing prices for starter homes or entry-level properties that are too high in several high-demand metropolitan areas (Bay Area, New York City, southern California).

(4) Available credit and homes for those with more financial resources but fewer options for those with less.

In other words, the normal swing of the pendulum between buyers and sellers might not be enough to put the housing market back to rights.

Most millennials want to buy a home but we keep findings ones who don’t want to

Here is a recent story that both includes survey data that most millennials want to purchase a home yet leads with one who does not want to do this:

Niederkorn, a member of the millennial generation, currently lives with his parents but said he plans to be a renter for life and never buy a home. He craves the ability to pack up and go, he said, and doesn’t want to be saddled with a home loan, property taxes or homeowners associations fees. And though this may put him in the minority — an Apartment List survey of about 24,000 renters nationwide released in May found that 80 percent of millennial renters want to buy a house or condo sometime in the future — it does raise some interesting questions about the American Dream and the place of homeownership within it.

The historical overview of homeownership that follows is helpful but it is a weird premise: the cited data suggests there is a clear pattern but there is this one suburban guy who is going another direction. Do we follow the data or the single story?

On a related note, journalists are fascinated with millennials and what they may or not do, including buying a home. When I see such stories, I wonder if this is masking three different purposes:

  1. This is just another way to suggest there is a trend (journalists are always looking for trends).
  2. Journalists really hope millennials usher in major changes to American society.
  3. Younger journalists often live in big cities and want other millennials to affirm their choices.

Homeownership and suburban living is a hot topic in this area: will millennials follow their parents to the cookie-cutter suburbs and live boring lives? (There is often an evaluation of the suburbs included in the story.) I haven’t seen many articles where the conclusion is that many or most millennials will end up in the suburbs.

Closing on a house feels like…

Based on my limited experience and scholarly interests, here are some possibilities for what closing on a house can be:

Fulfilling the American Dream of homeownership. On the positive side, owning your own property and providing space for a family. On the less positive side, establishing your class status.

-Agreeing to a sizable debt to a large financial institution. On one hand, you probably couldn’t buy that home without a long mortgage (thank goodness for the 30 year loan). On the other hand, you don’t really own your property for a long time and those mortgage payments just keep coming. Overall, a home is going to be the single largest investment/outlay of money for many.

-The end of a complicated process. I’ve seen several surveys suggesting many Americans dislike applying for mortgages (here is one example). It is one of those things in life many people don’t do more than a few times and it often requires a lot of paperwork (both to submit and to read).

-The start of a new era. (1) Even with the mobility of Americans and our relatively low attachment to places, we get used to the physical structures in which we live. (2) A new home often means new social arrangements as we navigate changing families and new neighborhoods and communities.

-Keeping another house occupied. Obviously, no one wants a lot of vacant properties – with lots of discussions of this in recent years involving foreclosures and particular locations like Detroit – but we can push the idea further: just how long will American homes last? Will post-war suburban homes be worth rehabbing when they hit 40-80 years of existence?

-Helping a community continue to exist. With your home purchase, you are making a commitment, if not socially (you could just retreat to the private world of your new home), then at least through your taxes. Even if we put too much emphasis on high population growth as a sign of success, communities can’t afford to lose too many residents and taxpayers.

Claim: Millennials can’t buy a house so they are serfs

Joel Kotkin makes a bold claim regarding the inability of millennials to purchase a home:

Like medieval serfs in pre-industrial Europe, America’s new generation, particularly in its alpha cities, seems increasingly destined to spend their lives paying off their overlords, and having little to show for it.

No wonder that rather than strike out on their own, many millennials are simply failing to launch, with record numbers hunkering down in their parents’ homes. Since 2000, the numbers of people aged 18 to 34 living at home has shot up by over 5 million…

It’s time for millennials to demand politicians abandon the policies that have enriched the wealthy and stolen their future. That means removing barriers to lots of new housing in cities and, crucially, embracing Frank Lloyd Wright’s notion of Broadacre Cities, with expansive development along the periphery.

These new suburbs, like the Levittowns of the past, could improve people’s lives, while using new technology and home-based work  to make them more environmentally sustainable. They could, as some suggest, develop the kind of urban amenities, notably town centers, that may be more important to millennials than earlier generations. One thing that hasn’t changed is the demand for affordable single-family homes and townhomes. But the supply is diminishing—those under $200,000 make up barely one out of five new homes.

This is a familiar argument for Kotkin: millennials really do want to own homes in the suburbs – like many other Americans since the early 1900s – and economic policies limit their opportunities.

But, this argument is still overstated in its claim that millennials are serfs. Kotkin gets at a deeper question: is homeownership essential to the American way of life? More specifically, a suburban home in a nice community? There is much in American history to suggest that owning land and a home is key, even if it isn’t a right. Yet, does it necessarily have to always be part of American life? Could Americans decide that they value other things (and not be forced away from homeownership by forces outside of their control)?

Trying to predict the 2017 housing market

This summary of predictions for housing in 2017 includes 17 different estimates from various groups. Here is the one I’m most interested in:

Most observers expect home sales and prices to moderate in the coming year. They say suburbs will make a comeback while the days of low mortgage rates are over.

Suburbs will make a comeback you say? Perhaps there will indeed a Donald Trump effect for suburbs. Here is one more specific suggestion that might contribute to this:

The percentage of people who drive to work will rise for the first time in a decade as homeowners move farther into the suburbs seeking affordable housing.

Cheaper gas probably doesn’t hurt either.

Looking through these 17 predictions, few explicitly apply to suburbs. Most are about two things: millennials (with some help from baby boomers) are driving the housing market and there will be a slow rise in housing values.

One bonus summary statement:

One prediction you can always count on: No matter what’s happening with the economy, NAR is always going to say it’s a great time to buy. Its fourth quarter Housing Opportunities and Market Experience survey found that 70 percent of people say now is a good time to buy a home. NAR also predicts the rate on a 30-year fixed mortgage will rise to 4.6 percent by the end of 2017.

Perhaps there is one prediction missing: will the homeownership rate rise after dropping in previous quarters?

And who is going to check to see if these predictions for 2017 were successful?

Housing anxiety in America will lead to what kind of action?

A new poll suggests Americans are worried about housing:

According to a survey by the NHP Foundation, 75 percent of Americans are worried they could lose their homes, while 83 percent of respondents said that they were concerned about the rising costs of housing.

Some 30 percent of the respondents described themselves as “very concerned” that they or a close friend or relative could lose their housing, meaning that nearly one-third of Americans feels that a lack of affordable housing could represent a personal crisis. Another 27 percent described themselves as “concerned”—meaning more than half of respondents consider housing instability to be a looming danger.

Per the poll, about 40 percent of respondents say that they fear they could lose their homes due to job loss. This fear is not unfounded. Neil Gabler’s May cover story for The Atlantic cites Federal Reserve Board data that showed that almost half of U.S. households (47 percent) could not muster $400 in an emergency. A report by the Urban Institute shows that more than one-third of all American families (36 percent) have savings of less than $250. One-quarter of U.S. households have no savings at all…

The NHP Foundation finds that 80 percent of its respondents (1,000 Americans polled nationwide) say that they would welcome affordable housing in their communities. But affordable housing is rarely if ever posed to residents or voters as an up-or-down, yes-or-no question: “Would you like more affordable housing?” Sure, we all would. Except when it involves changes to the places where we live; then our neighbors flip out about it.

Perhaps builders will help with a shift toward constructing smaller homes. Or, as the quote above suggests, housing isn’t the primary issue: people anxiety about jobs which then affects housing.

Thinking longer term, I wonder what it would take to advance more drastic solutions to housing issues. Some possible turning points:

The homeownership rate continues to drop. Some might say this limits the American Dream while builders could note that this limits their profits and industry (which is also connected to jobs).

-Housing prices rise to where a larger segment of the market is paying substantially more than 30% of their income for housing. Even then, how exactly would this group turn their grievances into collective action?

-Another economic downturn leads to higher employment and more housing issues. Higher foreclosure and eviction rates could cause issues.

-A political candidate makes housing a major issue. As this article notes, no one is really talking about this.

-Could there be a major building or financial scandal that leads to reform?

I’m not sure any of these would lead to anything but temporary measures. Or, perhaps housing in the United States will simply slowly change: wealthier residents will be able to afford newer housing in better locations, people with fewer resources will have fewer and fewer options, homeownership will become less desirable, and all of this will be more clear in a few decades.

2016 State of Housing report: not so good

The State of the Nation’s Housing 2016 was released last week and there are a number of unfortunate historic points highlighted in the executive summary:

But at 1.1. million units, new home construction was still running near historic lows last year. A key factor holding back housing starts is the sustained falloff in household growth…

The US homeownership rate has tumbled to its lowest level in nearly a half-century. The decade-long declines are especially large among the age groups in the prime first-time homebuying years…

Just as exits from homeownership have been high, transitions to owning have been low. Tight mortgage credit is one explanation…And given that the homeownership rate tends to move in tandem with incomes, the 18 percent drop in real incomes among 25-34 year olds and the 9 percent decline among 35-44 year olds between 2000 and 2014 no doubt played a part as well…

On the renter side, the number of cost-burdened households rose by 3.6 million from 2008 to 2014, to 21.3 million. Even more troubling, the number with severe burdens (paying more than 50 percent of income for housing) jumped by 2.1 million to a record 11.4 million…While nearly universal among lowest-income households, cost burdens are rapidly spreading among moderate-income households as well, especially in higher cost coastal markets.

The conclusion suggests stability – homeownership should stabilize with increased household formation – as the effects of the housing bubble continue to fade. However, the glory years of housing seem to be far off as housing costs plague many Americans and the housing industry concentrates on higher end units.

As the economic crisis slowly fades into history, the question remains: is American housing transformed for decades (lower rates of homeownership, more high-cost renting, fewer housing starts)?