Homeownership: Giving up on the American Dream
Written By: Christine Dantz
Homeownership in the U.S. hit 63.4 percent in the second quarter of 2015; the lowest rate since 1967. This has many people worried and multiple industries pitching theories, hoping to make sense of the decline. Does the blame lie with the stringent requirements following the housing market crash? Are people still weary of the financial responsibility in a still uncertain American economy? Or, are some critics right? Is homeownership culture changing—are Americans giving up on the America Dream?
Strictly by the Numbers: How Bad is it?
First, what we do know: The U.S. Census Bureau has been collecting quarterly homeownership rates since 1965 with the American Community Survey (ACS), which is updated every year by the bureau. The ACS is the short-form of the decennial census. They define a housing unit as any house, apartment, and mobile home, group of homes, or single room that is occupied as a separate living quarters that is occupied by the owner, even if the unit is mortgaged or the owner is still making payments to purchase the unit.
How is the rate calculated? The homeownership rate is calculated by taking the number of owner-occupied housing units and dividing it by the number of occupied housing units or households.
The numbers used to calculate the rate are estimates with a ten percent margin of error.
While it’s true that the last survey showed the lowest rate since 1967, that rate in 1967 was a part of a rise in American homeownership from 1965 (63.4 percent, 4th quarter), that would continue to creep slowly each year until peaking at 65.5 percent in 1980.
In 1985, just five short years later, homeownership hit a low of 63.5 percent. But that didn’t last, from 1986 until 2004 the housing market exploded, with homeownership peaking at a record high of 69.2 percent.
Of course, we all know what happened next…the market crashed.
The Financial Stigma is Still a Problem
Americans are weary of the market, still, and who can blame them? Even as the economy is improving, 7.4 million current homeowners are still drowning in home debt. RealyTrac defines mortgage debt as having a loan amount that is a minimum of 25 percent higher than the property’s market value. More than 13 percent of all mortgaged properties in the U.S. are in this group. Nonetheless, it’s still much lower than the more than 17 percent of mortgages that were underwater in early 2014.
If Americans are watching friends, family, and neighbors still struggling to pay their mortgage, affordability and job security are important pieces of the puzzle that aren’t adding up right now for renters.
Even as America is recovering from the recession, some locations around the country are doing better than other areas. According to the National Association of Home Builders (NAHB) and the Wells Fargo Housing Affordability Index, in 2014, 65.5 percent of all homes were affordable for Americans who earned the median income.
Unfortunately, affordability increased because home prices decreased during the same time that the median income shrank from $64,400 in 2013 to 63,900 in 2014. The decrease in price helps potential homebuyers, but not homeowners, especially if they are part of the 13 percent of Americans that are still struggling to reduce the difference between their mortgage and their home’s market value. So even with prices rising on paper, the reality is the numbers aren’t nearly as clear as the experts want you to believe.
Say It Isn’t So: Has the Homeownership Dream Changed?
Yes and no. While some industry heads want Americans to believe the dream remains unchanged in an ever-changing world, others are convinced that dream is dead. Neither theory is correct, though both still hold key points in predicting which way today’s trends in homeownership are heading.
Throughout history, owning property has been a symbol of wealth. There is no denying that most Americans still see the value in owning their own home. However, few have the funds to purchase at full price, which requires the majority of potential homeowners to secure a mortgage. A mortgaged home is a debt with very little equity for the first five years.
Following the real estate market crash and the Last Great Depression, Americans of all age are still weary of making that plunge because they saw first-hand how easy it is to lose that home before it’s paid in full, and even then, failure to pay property taxes can even take that away!
It’s easy to see how all these conditions left 64 percent of Americans less likely to see homeownership as a way to build wealth and equity today than they did 20 to 30 years ago. A 2014 survey of 1,355 adult by Hart Research Associates found that almost 45 percent of respondents no longer saw homeownership as a wise, long-term investment.
Hart Research Associates President, Geoff Garin explains,
"People believed if you reached the middle class, you didn't have to make the difficult decision of renting or buying without falling behind on credit card payments or health care bills."
According to a 2014, CNNMoney American Dream Poll conducted by ORC International, close to 6 in 10 Americans surveyed feel the American dream is unobtainable. (This was a generic poll, not specific to just homeownership.)
Who can blame them? However, before giving up on the dream, another survey by Merrill Lynch and Age Wave found Americans still have that dream, But, the age ranges are changing. Young people want a good deal of flexibility to move for employment and other career opportunities to improve their lives and if they have one yet, their families. These Americans see owning a home as a weight, preventing them from the ability to move across the country or world for these opportunities.
On the other hand, other, many older retired Americans, want the opposite. They are looking for a place to call home for the next 20 or 30 years, as the average lifespan of people increase. In addition, as retirees are living longer and healthier, they also want to stay in their own home, rather than go to nursing homes and other residential care facilities that were popular care options in the past.
Americans aren’t necessarily giving up on the American dream of homeownership, they are just delaying that dream while they feel out the market, watch the unemployment rate, interest rates, and get their footing back following the past decade of financial uncertainty.
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