Can you count multiple friends or family members who, for whatever reason, just don’t seem to be that interested in owning a home right now? If so, you’re not alone. Homeownership is down. Way down, in fact.
While a near fifty-year low may be shocking, it’s important to point out we didn’t get here overnight. As a recent Wall Street Journal graphic illustrates, homeownership peaked at 69.2 percent by the end of 2004, well before the housing bubble burst, and has been steadily declining ever since. And while the next question is “why?”, there’s no one easy answer. In this post, we’ll take a closer look at some of the factors contributing to this declining homeownership rate, starting with the economy.
Wages and Jobs
However, middle-wage jobs paint a different picture. According to the report, these jobs, with wages ranging from $32,000 to $53,000 a year, fell the most and have yet to recover all their losses. In many markets, first-time homebuyers would fall into this middle-wage job range.
The recession, small gains in middle-income jobs and overall wage stagnation don’t account for the long-term decline of homeownership. The figure started falling before the bubble burst and the recession took hold. Homeownership climbed sharply beginning around 1995 for nearly a decade, despite middling wage growth. And the stark distinctions between job tiers after a recession is reportedly new, emerging after homeownership began to decline. Other factors appear to be at play.
Karen Krupsaw, vice president of real estate operations at Redfin, recently told the Wall Street Journal that buyers were “worried about too-high prices and are more cautious about making offers.” That’s especially true for buyers who may not be in strong financial situations due to the aforementioned jobs and wages setbacks. For these buyers, price may be a big reason they’re not in the market, but it’s hardly the only one.
Inventory Shortages and Building Cutbacks
Two factors driving the current years-long valuation increase is the slim inventory of existing homes and a lack of low-priced new construction. Anand Nallathambi, president and CEO of CoreLogic, singled out “supply constraints” as one of two factors that lead to “severe shortfalls” in affordable housing that may be pushing home prices up into 2016, and possibly beyond.
As finance blogger Bob Sullivan pointed out in August, a healthier housing market would provide a “wide spectrum” of housing options — including those for starter-home buyers. For now, it appears we’re missing the lower end of that spectrum.
CoreLogic’s Nallathambi also mentioned a second factor leading to affordable housing shortfalls and lower homeownership — rising rental costs. Rising rents have been plaguing locations in the Bay Area, Los Angeles, and New York for some time, but the trend appears to be spreading. Even renters in cities like Denver, Atlanta, and Nashville are now feeling the heat.
But even if all these factors weren’t a problem, if more Americans could move into homeownership, would they want to right now? Isn’t there a generational shift happening?
So which factor is responsible for U.S. homeownership’s 48-year low? It’s hard to say. Building starts are related to economic health and inventory shortages. Economic factors squeeze buyers from both sides, with rising rents and home prices locking some out of the market. Millennial sensibilities may also be a factor.
Whatever the cause for the current slowdown, it’s hardly reason to lose hope. In many ways, 2015 has been a good year for real estate. The summer homebuying season was strong, home appreciation is helping current homeowners, and economic growth is indeed helping some segments of the population move into homeownership. Lastly, just because homeownership has declined to 1967 levels doesn’t mean it can’t or won’t rebound to its 1970s, 1990s, or mid-2000s highs. It’s climbed before and in all likelihood will do so again.