Root Causes for U.S.’s Depressed Home Ownership Rate

Despite steadily improving local job markets and historically low mortgage rates, the U.S. homeownership rate is stuck near a 50-year low.

BERKELEY, Calif. – June 15, 2017 – Despite steadily improving local job markets and historically low mortgage rates, the U.S. homeownership rate is stuck near a 50-year low because of a perverse mix of affordability challenges, student loan debt, tight credit conditions and housing supply shortages.

That's according to findings of a new white paper titled, "Hurdles to Homeownership: Understanding the Barriers," released in recognition of National Homeownership Month at the recent National Association of Realtors® (NAR) Sustainable Homeownership Conference at University of California, Berkeley.

Led by a group of prominent experts, including NAR 2017 President William E. Brown, NAR Chief Economist Lawrence Yun and Berkeley Hass Real Estate Group Chair Ken Rosen, the conference addressed the dip and idleness in the homeownership rate, its drag on the economy and what can be done to ensure more creditworthy households have the opportunity to buy a home.

"The decline and stagnation in the homeownership rate is a trend that's pointing in the wrong direction, and must be reversed given the many benefits of homeownership to individuals, communities and the nation's economy," Brown said. "Those who are financially capable and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream." One of Brown's main objectives as president of NAR is identifying ways to boost the homeownership rate in a safe and responsible way.

The research was commissioned by NAR, prepared by Rosen Consulting Group (RCG). and jointly released by the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley Haas School of Business. It identifies five main barriers that have prevented a significant number of households from purchasing a home. They are:

Post-foreclosure stress disorder: There are long-lasting psychological changes in financial decision-making, including housing tenure choice, for the 9 million homeowners who experienced foreclosure, the 8.7 million people who lost their jobs, and some young adults who witnessed the hardships of their family and friends. While most Americans still have positive feelings about homeownership, targeted programs and workshops about financial literacy and mortgage debt could help return-buyers and those who may have negative biases about owning.

Mortgage availability: Credit standards have not normalized following the Great Recession. Borrowers with good-to-excellent credit scores are not getting approved at the rate they were in 2003, prior to the period of excessively lax lending standards. Safely restoring lending requirements to accessible standards is key to helping creditworthy households purchase homes.

The growing burden of student loan debt: Young households are repaying an increasing level of student loan debt that makes it extremely difficult to save for a downpayment, qualify for a mortgage and afford a mortgage payment, especially in areas with high rents and home prices. As NAR found in a survey released last year, student loan debt is delaying purchases from millennials and over half expect to be delayed by at least five years. Policy changes need to be enacted that address soaring tuition costs and make repayment less burdensome.

Single-family housing affordability: Lack of inventory, higher rents and home prices, difficulty saving for a downpayment and investors weighing on supply levels by scooping up single-family homes have all led to many markets experiencing decaying affordability conditions. Unless these challenges subside, RCG forecasts that affordability will fall by an average of nearly 9 percentage points across all 75 major markets between 2016 and 2019, with approximately 5 million fewer households able to afford the local median-priced home by 2019. Declining affordability needs to be addressed with policies enacted that ensure creditworthy young households and minority groups have the opportunity to own a home.

Single-family housing supply shortages: "Single-family home construction plummeted after the recession and is still failing to keep up with demand as cities see increased migration and population as the result of faster job growth," said Rosen. "The insufficient level of homebuilding has created a cumulative deficit of nearly 3.7 million new homes over the last eight years."

Fewer property lots at higher prices, difficulty finding skilled labor and higher construction costs are among the reasons cited by RCG for why housing starts are not ramping up to meet the growing demand for new supply. A concentrated effort to combat these obstacles is needed to increase building, alleviate supply shortages and preserve affordability for prospective buyers.

"Low mortgage rates and a healthy job market for college-educated adults should have translated to more home sales and upward movement in the homeownership rate in recent years," said Yun. "Sadly, this has not been the case. Obtaining a mortgage has been tough for those with good credit, savings for a downpayment are instead going towards steeper rents and student loans, and first-time buyers are finding that listings in their price range are severely inadequate."

Added Rosen, "A healthy housing market is critical to the overall success of the U.S. economy. Too many would-be buyers have been locked out of the market by the factors found in this study, and it's also one of the biggest reasons why economic growth has been subpar in the current recovery."

Source: National Association of Realtors®

© 2017 Florida Realtors®. All rights reserved. Reprinted with permission.

1 reply
  1. Frank
    Frank says:

    The article address the symptoms but not the root

    The article concerns are accurate but only a symptom of the problem and not the root cause. The real problem is Friedman (Reaganomics, Neo-classical, libertarianism economics, trickle-down economics, voodoo economics…etc . There all the same. Just a different word for the same thing).

    That is the cause for the above symptoms listed in the article. Remember the original creator of Monopoly created the game to show how the economic system (winner take all) at the time didn’t work. Were been using the same economic system today as was used during the time the creator created the Monopoly game. The same economic philosophy that lead to the great Depression.

    Our current economic condition can be compared to the very later stages of the Monopoly game when there are people out of the game, a couple people with all most all the properties and a couple stragglers just holding on for dear live.

    So why are the economist in the article pointing out and discussing the symptoms of the current real estate market and not the actual causes. It’s that the duration of time is of such a short term but most likely that they believe in the current economic model.

    Real estate prices rebounded off the 2012 lows but are sill historically high (looking back over a hundred years) and again in another bubble.

    The economy, real estate included, are still over-priced.

    1) Post-foreclosure stress disorder – I disagree with. Look at how the general public forget the 2001 stock market bubble and it’s burst and quickly over-came the psychological factors to quickly jump into the real-estate boom and bubble which occurred in less then a decade.

    2) The growing burden of student loan deb. Absolutely but again just a symptom. Trickle-down economics has worked exactly as the Friedman Theory applies. With the new income going to the Top and the public fighting for the money trickles or scrapes.

    3) Mortgage availability. Deregulation of the mortgage industry created the bubble and the burst. Again, Reaganomics! BEWARE, if crazy mortgage products come back so that the masses can afford to buy real estate, run for the fences for it is a sure sign the market is about to tank. For the big fish makes their money off others and have gotten into real estate during the bust. Mortgage availability is just another symptom of an economic system that favors the wealthy class.

    4) Single-family housing supply shortages. If there were demand for homes at these prices builders would build new homes. A symptom of the current US economic symptom being practiced since the 1980’s. Wages have stayed the same for the middles class since Reaganomics and in fact adjusting for inflation are less then in the 1980’s. If the cost of things have been increasing over the decades but wages stayed the same eventually people will be priced out of the market.

    5) Single-family housing affordability. Again just a symptom point to the cause Single-family housing Reaganomics.

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