Homeownership: No Longer Part of the American Dream?

Julia Chang
Posted

homeforsaleThere was a time when owning a home was part of the American Dream.

But is that dream still alive? If you live in major cities like New York and San Francisco, where bidding wars for property are alive and well, then the answer might be yes. But for large swaths of the country, the residential housing market hasn’t caught the same kind of fire.

The New York Times reports that investment in residential housing is a smaller share of the overall economy now than at any time since World War II. In 2013, housing activity as a share of GDP was just above 3%. That number is even lower than in the 1980s, when mortgage rates hit an astounding 20%, and the 1990s, when many mortgage lenders failed. By contrast, in the late 1940s, housing activity as a percentage of GDP hovered between 4% and 6%.

So why has housing been a drag on the economy? The culprit seems to be that fewer people feel the need to realize the dream of homeownership. “Now our main challenge is housing demand, and that means we need more people forming households,” Stan Humphries, chief economist at Zillow, tells the Times.

Given current demographic trends, housing demand should be on the rise: The U.S. population has grown by about 20 million since the housing market tanked in 2006. But that increase isn’t leading to new household formation. In fact, there’s a 2.4 million household deficit to explain. That’s the number of new households that should have formed, based on historical demographic patterns, but didn’t, according to Jed Kolko, chief economist at Trulia.

The biggest reason behind the “missing” homebuyers seems to be the frequency with which young people live with roommates or their parents, either by choice or by financial necessity because they can’t find jobs.

But Trulia’s research found that even those 18- to 34-year-olds who do hold jobs are more likely to live with their parents now than they were before the recession. In 2013, about 25% of working people in that age group lived with parents, compared to about 22% in 2007. College debt or lack of job security could be what’s keeping even the employed members of the younger generation from living on their own.

One segment of real-estate construction that is on the rise, however, is multifamily properties, mostly for rentals. This category made up 34% of total housing permits issued, the highest proportion since the 1980s. Rentals are likely on the rise because they are attractive to tenants who can’t decide whether to buy, as well as retirees who don’t want the hassle of owning a home.

The big-picture takeaway is that in order for the economy to grow, the housing market needs to pick up. But in order for that to happen, more people need to feel financially secure enough to buy a home. Even then, it may take years for young people to have built enough in their savings to venture out on their own.

  • Tdot

    I think we are missing the fact that people have trouble affording it. I live in New York City. Here to buy you must put at least 20% down and. The most inexpensive apartments (1 bedroom) coops are in the $100,000′s, which means you need at least $20,000 not including closing cost. This means that some where in between graduating from college and your first job you had to start saving. Now the average salary in NYC is $35,000. your taxed at about 30%, which means you only take home $24,500 a year that’s 2000 a month. Now lets say you buy a $150,000 coop, with a maintenance fee of $450, your monthly payments are $1450. That gives you $550 to live off of. That will need to include your $112 metrocard, maybe some food $150 month, cable internet and phone- $100, cell bill- $60. I mean that’s pretty rough, I hope you don’t have any student loans. Not to forget that you had to come up with a $30,000 down payment. How did the same individual swing that. Lets say you are renting, the average studio cost $1200. So if you take your $2000/month take home, after rent and utilities ($40) you have about $300 a month savings. That is $3,600 a year. It would take you almost ten years to save up to buy a 1 bedroom coop. So until something changes, home ownership is a very complicated apart of the american dream.

    • outragex

      I sympathize with the problem you describe. When my wife and I bought our first house in the 80s the mortgage rates were in the upper teens and it was a big decision. However, NYC is a very expensive market, and $35k is a small salary, esp. in that area. Home buying may simply be impossible at that salary. I don’t know about NYC but other parts of the nation have a few homes that are part of the HomePath program (Fannie Mae) that allows for smaller downpayments (5% I believe), and special terms to get foreclosed property sold quickly.