A few reasonable exceptions aside, most young adults aspire to own their own home one day. I could expound on the reasons why, like security, freedom, pride, and community roots, but the person who needs to read this likely already knows those things.
What I’m actually writing about is just how tenuous that dream of home ownership has become in the last 10 years. But first some history.
Between 1934 and 1972 the percentage of families living in their own homes rose from 44% to 63%. That was largely due to post-depression, post-war prosperity, but another significant factor was the advent of the Federal Housing Authority, or FHA , in 1934, creating government-backed mortgages which allowed lower down payment than the conventional mortgages of the time. And then in 1944, with so many servicemen returning from World War II, the new “GI bill” allowed veterans to obtain competitive mortgages with nothing down. It was a good time to be an American!
Interestingly, the highest that the homeownership rate ever got to was 69.2% (32 years later) in the middle of 2004. 3 years after that it began a noticeable decline, which continued through the middle of 2016 where it bottomed out, 4 years after the end of the “Great Recession”, at 62.9%. That recession not only displaced a lot of people from their homes through foreclosure, but also made them ineligible to purchase for number of years thereafter due to decimated credit scores and, in many cases, bankruptcies, and job and income losses that did not bounce back right away. Due to the precipitous rise in home prices since then, sadly, many of those folks may never own a home again. I vividly recall in 2012 almost ranting for people who were able to get busy buying homes because prices were so low, and interest rates had also dropped down to record lows. But many were hesitant, fearing that the market had not yet bottomed out. This was not my first housing recession as a real estate professional, and as it had before, when it did hit bottom there was a springboard awaiting. And by January 2013 sales, and prices, were jumping!
Before 2013 was up, I had realized something ominous afoot in this housing recovery. Remember how I said that many of those who lost their homes during the recession couldn’t buy again for a while? Even though home sales were accelerating, homeownership continued to decline, as I said, until mid-2016. But how could that be? You guessed it. Investors were snapping up everything they could get their hands on. In many cases they were fixing and flipping, converting all the potential they could from those tired post-recession homes into profit. And I’m not faulting them, to be clear. There was, and still is, a strong demand for turn-key homes. After all, not everyone enjoys updating an older house. And there certainly weren’t enough new homes being built in those entry level and medium level price ranges (there still aren’t). But increasingly, investors were buying them up to hold as rental properties. When I saw the ferocity with which this was happening, I knew we were witnessing a dreadful, widening divide between the Haves and Have-nots, for which real estate ownership, especially home-ownership, plays a significant role. During that three-and-a-half-year period, while the percentage of homeowners was still faltering, home sales had increased from 4500 to 5500 per month. It was predominantly investors absorbing that inventory. And it only accelerated from there. In the first and second quarter of this year, the most recent data I could find on the subject, investors represented between 15% and 16% of all home sales. Ten years ago, that number was 8%. And yes, many of those purchases were updated and flipped back into the market, but it is now reported that investors are holding a higher percentage of the homes they purchase.
Worse yet, it’s not just local entrepreneurs who are profiting, turning money back into the local economy. There are billion-dollar corporations aggressively buying up single-family homes and holding them as rentals. Corporations such as Blackstone Group and their spinoff, Invitation Homes, are buying en masse the very same homes that would-be first-time homebuyers, or anyone moving their middle class family to a new area, with a middle-class income, might also need to purchase. And when it comes to a competitive bidding for a newly listed home on the market, the cash investor has every advantage.
But those who’ve been dedicated to owning their own home have been tenacious, and with persistence they’ve succeeded. Most recently the homeownership report has Q3 2021 at 65.4% down from a spike to 67.4% in the 2nd quarter of 2020 (Covid panic buying), but right on par with pre pandemic, Q1 2020.
Rest assured that I will never present a problem, especially at such length as this, without suggesting viable solutions.
If buying a home is your mission, first, commit your loyalty to a real estate broker that you know has your best interest in mind. Their job will not be easy, but they also don’t get a nickel for their time until you’ve succeeded together. And if they’re not dedicated to your objective, fire them, and get one that is.
You should accept and concede to the fact that there is no perfect home, and you will likely pay more than you think you should, and often more than the home is “worth” right now. I counsel my buyers who are trying to purchase in the more competitive market segments that if you have to pay the price that looks like six months of appreciation more than it should be now (5-10%), just do it! Otherwise, you’ll be out there 6 months from now still trying to buy a house and the prices will naturally have climbed to where you could have been, and you’ll still be outbid. I also encourage first time home buyers who are struggling to afford a home that meets their minimal needs, strongly consider buying a duplex or tri-plex, were they qualify for the higher price due to the rent coming in from the other unit(s). This also gets you a larger overall investment.
And I’m strongly encouraging parents of young adults to consider helping their kids buy that first house, even if it means dipping into investment or retirement funds, but not at the expense of their post-retirement security, of course. Purchasing a home, and never paying rent again, is the most prudent, long-term financial move most will ever make. I can’t tell you how many I bought and sold over the years, but I can tell you that the equity gains over time, even through the occasional drop in value, has been substantial, to say the least. Wishing you Happy Homes!