Tag Archives: homeownership

The Chicago bungalow as a symbol of early 20th century success

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Living in a Chicago bungalow became a symbol of a successful life:

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The humble bungalow made it possible for Chicagoans to realize the American Dream of home ownership. In the first part 20th century, between 80,000 and 100,000 bungalows were built in Cook County. The majority went up between the end of World War I and the beginning of the Great Depression, making many about 100 years old. Many were home to first-generation immigrants. They formed an arc around the city’s center known as the Bungalow Belt.

It “stretches all around the city, from South Shore to Marquette Park, out west to Austin to the Northwest Side and West Rogers Park,” Dominic Pacyga, a Columbia College urbanologist, told the Tribune in 2000…

In 1997, a Tribune declared: “Bungalows Were Better Than A Place To Live. They Told The World Who You Were” over a story that declared the humble home to be “an idea, a symbol, a trophy, a style, an approach to life.”…

Chicago’s bungalow builders left that idea behind, while appropriating the concept that the middle class deserved homes with little artistic touches, like those the wealthy took for granted: leaded window glass, red or yellow brick with checkerboard patterns, bay fronts either octagonal, squared or rounded.

Three quick thoughts:

  1. This highlights the coming and going of residential architectural styles. This design emerged in a particular era, took off, and now has been replaced by other designs that address the wants of residents and builders and that also became symbols of joining the middle class. (See the suburban ranch home or the McMansion.)
  2. How exactly does a particular home style become a status symbol? The article hints at the role of developers (selling the image that goes with this particular home), politicians (promoting the style and protecting the homes in later decades), and residents. Could we add in famous cultural works that take place in or highlight or celebrate the bungalow? The role of zoning officials and historic preservationists?
  3. How many of these homes initially were owned by white residents of Chicago and how much has this changed over time? How much did bungalows contribute to long-standing patterns of residential segregation and differences in wealth among homeowners?

How homeowners and investors see home purchases differently

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What is buying a home about? It could depend who you are:

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Ordinary buyers and investors have different priorities when sizing up a house purchase. An owner-occupier will focus on whether they can afford the monthly mortgage payment, rather than obsessing over cap rates. They might be willing to overpay if the house is in a good location and is the right long-term fit for them or their family.

It can be frustrating for institutional investors when house hunters bid prices up to irrational levels in tight markets, as is happening today. But sky-high valuations have a silver lining for landlords. Oddly, family homes have turned out to be a great hedge against higher interest rates, as the lock-in effect of ultralow in-place mortgages has protected valuations. And now is a great time for landlords to prune their portfolios and sell properties at near-record prices. 

As the existing housing stock is so unaffordable, investors need to find other ways to grow their portfolios. Large players such as American Homes 4 Rent are building houses themselves, or buying newly constructed units directly from builders. This should be helpful for the undersupplied U.S. housing market.  

There is also a small pool of properties that can be picked up at prices that make sense to investors. According to real-estate investor Amherst, around $12 billion of two-to-four-bedroom homes are currently listed for sale at a 5.75% cap rate. These properties are cheaper because they need work. But it might be more lucrative to patch them up than to build new ones, given it currently costs $200 a square foot on average to build a house compared to $20 to $30 a square foot to renovate.

In the end, both sets of owners want to gain financially from their purpose. Investors want a return on their investment as do homeowners as they tend to expect the value of their property to increase in their time as owners.

But how they get to that return seems to differ. The homeowner will often live in the property in the meantime. As mentioned above, the financial return is not the only factor involved. For the big investor (the primary focus in the article as opposed to smaller investors), a property might be more of a data point among many other properties.

In both situations, it is worth asking how this emphasis on financial investment changes (1) the experiences of those living there and (2) communities. Owning a single-family home has long been part of the American Dream but the move to treating it more like a financial commodity does change matters.

Median home prices up 39% in four years

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How long can median home prices rapidly increase:

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The median U.S. home price is now $435,000, per NAR — up 39% since 2020 — while the average 30-year fixed mortgage rate has more than doubled to over 6% in that time

This is a quick jump in a short amount of time. Americans expect that housing values will go up over time – this is what can make it such a valuable investment – but can it keep going up this quickly?

Skepticism about this rise continuing at this rate could emphasize multiple unusual factors at play. A global pandemic. Interest rates shooting up. A quick turn toward working from home. A slow-down in housing construction, particularly for less expensive homes and starter homes. And housing prices do not always go up every year – they ten to over decades but not at every point.

On the other hand, why shouldn’t this rise continues? Where is a bunch of new housing going to come from? Will mortgage rates drop dramatically soon?

This statistic came from an article that primarily discusses how these rising prices mean many are priced out of the market. Those with resources already, particularly those with equity in a home, can better compete for the limited number of houses.

Whether values continue to increase or slow or even decline could go a long way toward affecting who can pursue the American Dream of homeownership.

One presidential candidate: “We should be doing everything we can to make it more affordable to buy a home, not less”

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With high housing prices in the United States (see concerns about rents set by algorithm, record rents in New York City, etc.), one presidential candidate has said more about how they might address the issue. From a campaign ad for Kamala Harris:

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We should be doing everything we can to make it more affordable to buy a home, not less.

I imagine at least a few listeners would find this appealing. Paying a mortgage or rent is often the biggest expense among households. Price in many places, particularly after the last few years, leave many feeling they cannot live where they want and/or financially uncertain.

The broad appeal to homeownership is one that political leaders in the United States have made for at least a century. See earlier quotes from Herbert Hoover, George W. Bush, and Barack Obama. Given how much Americans like single-family homes, why shouldn’t every politician consider promoting this?

The details are harder to work out and put into practice. In this particular campaign ad, Harris mentions fighting banks after the foreclosure crisis, addressing the issue of corporate landlords, and constructing 3 million new housing units. I am sure there are a host of opinions about whether these are the best options or doable options or enough options.

Could housing end up being one of the major policy issues of the 2024 elections? There is still time as the campaigns look for winning messages.

The increasing percentage of income going to homeownership costs

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A new report suggests a higher percentage of local income is going toward owning a house:

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The costs of a typical home — including mortgage payments, property insurance and taxes — consumed 35.1% of the average wage in the second quarter, the highest share since 2007 and up from 32.1% a year earlier, according to a new report from Attom.

Growth in expenses, along with mortgage rates hovering around 7%, have outpaced income gains as a persistent shortage of listings pushed the median home price to a record-high $360,000, Attom said. In more than a third of US markets, ownership costs ate up 43% of average local wages, far above the 28% considered to be a guideline for affordability.

The new figures are tied to two other numbers: (1) what were homeownership costs in the past and (2) what are the guidelines for how much money should go toward housing. For the first, it would be interesting to see longer-term data; is 35.1% significantly higher than times in the past? How has this figure fluctuated during different economic and social conditions? When were the periods when average income allowed purchasing homes at lower percentages? For the second, is 28% the recommendation or is 1/3 of one’s income the recommendation or is a higher percentage okay (and particularly in certain circumstances, such as in an expensive housing market or if renting is not as viable)?

At the same time, comparing these current figures to the renting might also be helpful. Is renting cheaper and, if so, how much cheaper?

If Americans own a home, they are very likely to own a grill

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Americans value homeownership. And along with having a home goes having a grill:

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At least, that’s according to statistics from the Hearth, Patio & Barbecue Association that reported 80% of U.S. homeowners owned a grill or smoker in 2023 — up from 64% in 2019.

And having more time at home might go along with purchasing and using a grill. Or so it appears that way during the recent pandemic:

Most grill makers and retailers seem to agree that the pandemic pulled forward demand for grills and other long-lasting home equipment as people searched for ways to fill their days and entertain their families at home.

Is the appeal about being outdoors, cooking directly with fire, liking to eat grilled meat and other grilled items, or having this as a status symbol? A quick discussion of each of these:

  1. Homeownership often comes with a small yard or outdoor space. Grilling could provide another reason to be outside. Enjoy the outdoors while cooking rather than cooped up inside the kitchen.
  2. Cooking outside with fire has appeal for some people. It is a different experience compared to using the microwave or stove or oven where there is something in between what is cooked and the food. This is more direct. (Of course, there is both direct and indirect grilling so time with direct fire may vary.)
  3. Grilled food has a particular taste that is hard to replicate elsewhere. Yes, you can purchase an inside grill or you could add smoke flavoring or use techniques to get grill lines on food. But does it taste the same?
  4. Having a nice grill could be another part of showing the homeowner has made it. Not only do they have a nice house; they have a stainless steel eight burner grill or a Big Green Egg or a fancy pellet smoker setup. The value is in having and showing off the grill.

Costs rising for owning and maintaining a home

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A new report suggests owning a home has become more expensive in recent years:

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US homeowners are now paying an average of $18,118 a year on property taxes, homeowners’ insurance, maintenance, energy and various other expenses linked to owning a home, according to a new Bankrate study.

That’s nearly the cost to buy a used car and represents a 26% increase from four years ago when it cost $14,428 annually to own and maintain a home…

The per-month cost of owning and maintaining a home has gone from $1,202 a month in 2020 to $1,510 now, Bankrate found…

Of course, the silver lining for homeowners is the fact that home values have gone up significantly since 2020.

Those gains have padded the net worth of millions of Americans. Median inflation-adjusted net worth swelled by 37% between 2019 to 2022, according to the Federal Reserve.

These two trends above might be hard to reconcile: having a home costs more but the value of that home keeps going up. So a homeowner can feel crunched at the moment as they can anticipate a strong return on investment. Which one will they feel more – what feels like a loss in expenses or anticipated value down the road?

An American right to a good deal?

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Amid inflation and high prices, the Chicago Tribune editorial board ended an editorial on prices at Starbucks this way:

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It’s no sin to offer good value. Americans are practical people. We’re betting most of those who duck into a Starbucks would be pleased to see some special deals on the menu.

What American does not like a good deal? At the same time, Americans tend to say that the market sets prices. So what happens if prices seem unfair or unreasonable?

Two recent phenomena highlight this tension:

  1. Higher levels of inflation coupled with higher set prices. Is this fair? Sure, Americans keep buying during this time but they are spending more money on goods that used to be cheaper.
  2. High housing costs. Americans want to benefit as homeowners from rising property values but do not like paying high housing prices.

At what point do Americans deserve a good deal? Or when should non-market forces jump in to change conditions? This could depend on the particular context, leaders and influential actors, and what the public wants. Regarding the second example above, Americans have worked over decades to back up mortgages so that more people could pursue homeownership while not providing much public housing.

Even as Americans do not have a right to good deals, they tend to have at least some companies willing to offer goods or services at prices lower than others. This does not always occur and there are situations – such as with monopolies – where the government will step in. Without intervention, individual consumers are left trying to find a bargain or going without in a country devoted to consumerism.

Why not use President’s Day to sell homes rather than mattresses?

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American presidents for at least 90 years have supported homeownership. See these thoughts from Herbert Hoover in 1931. So why not tie President’s Day in February to selling and buying homes?

February might seem a bit early to promote buying and selling homes. It is still cold in parts of the country. The school year still has months to go.

However, I have heard that the housing market tends to pick up after the Super Bowl. Warmer weather is on the way. Families might be more willing to move with less time left in the school year.

Americans like sales and shopping. Why leave President’s Day to mattresses and furniture? Why not kick off the home real estate market every year? Pepper the weekend with quotes from Presidents Obama and Bush. Find some quotes from Lincoln, Washington, and other famous presidents that seem to support the modern idea of homeownership. Match patriotism, capitalism, and holidays.

Are houses in the American Dream primarily about building wealth?

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A recent article about the economic struggles of millennials describes the American Dream this way:

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Central to the pitch of the American Dream is a house. Homeownership, the traditional thinking goes, is the surest way to build wealth. Save up for a down payment, buy a starter home, and definitely don’t spend too long throwing money away on rent.

That dream has become more fantasy in the Covid-era economy.

The first sentence describes a longstanding sentiment: Americans want a house.

The second sentence goes a different direction. Buying a house is about making money. This might be in addition to other reasons for buying a home including: the status of owning a home; enjoying the home; maintaining and improving a piece of private property; and being a part of the community.

This short section highlights a larger shift in how Americans view homes. With the increase in housing values, more people view homes as a significant investment. They expect to make money on their homes. They plan to live in their homes for a while and experience profits when they sell. They make a home a part of their portfolio. And if different groups do not have as much access as homeownership to others, then wealth disparities exist and could grow.