The US home sales recovery has been a mixed bag. While certain numbers portray a sunny reality, others tell a different story. I’m talking here of home ownership rates and home sale rates. At first glance, these would seem to correlate strongly. But this hasn’t held true in today’s economy where, despite many fewer houses on the market, home ownership has hit a 20 year low.
Once reason for this is that homes are going to investors, not live-in homeowners. Homeownership is presently at 64.5% in the US. You’ve got to go all the way back to the 90’s to see numbers like that, long before the bubble and burst from which the industry is still recovering. There are many factors that contribute to this reality. And while the national trends are not homogeneous, many of America’s most highly populated regions have a negative trend when it comes to home availability and wealth creation. Here are some reasons why.
- It is harder to buy your first house than your second or third or… Home ownership is quite possibly the best method of wealth creation available to people who are not presently wealthy. By suddenly being able to save dwelling costs in the form of equity, combined with houses’ tendency to appreciate 4-5% per year, an initial investment can grow 25% or more in just five years. That number is much greater in some markets. And while this has been a wealth building model subsidized and encouraged by the Federal Government for years, it remains out of reach for many of the people who really need it. The factors of a good credit history, significant savings, and steady income don’t align in such a way that the majority of renters can make the jump to become homeowners. That’s why home sales are increasing, while homeownership is dwindling. In some markets, like Washington D.C., the number is in the low 40’s. But once an individual owns a home and builds wealth, it becomes much easier to buy another and earn rent from someone else, a monthly sum much greater than the typical mortgage.
- Home Ownership is not seen as an attainable goal in many cultures. For many years, home ownership was sold (some would save oversold) to renters as a way to come up in the world, a signal that they’ve arrived. But after years or decades of out-of-reach home prices, many cultures have given up the idea of homeownership as a reasonable goal. And this is for good reason. In many American cities, like Los Angeles, even bare minimum homes can cost $300,000 and upwards (sometimes a lot more). For people scraping to make rent, becoming a new homeowner is quite simply out of reach. For an investor, not so much. This reality is what continues to spur the tiny home movement, steel buildings, and other more affordable kinds of new construction. It is what has young middle classers moving to older cities like Baltimore, where houses can be had for cheap.
For homeownership to rebound in America, a number of things must happen. Wider availability of good jobs and properly subsidized housing in the form of land trusts may be answers. But homeownership as a bedrock of a strong economy must be a goal, where new homeownership rates can finally accompany the increase in home sales.