Homeownership evolving

homeownership and American Dream
Homeownership and the American Dream (from SolomonMcCown.com and bulldogreporter.com)

Homeownership wasn’t always part of the American Dream.  The American Dream originated as a concept about increasing one’s quality of life, which was well established before the Country’s independence from Britain.  John Kenneth White and Sandra L. Hanson discussed the history of the American Dream in the introduction to their edited collection “The American Dream in the 21st Century” (2011; Temple University Press).  They describe the American Dream as being fundamental to the Declaration of Independence.  But the, the idiom “American Dream” was not in our lexicon until the twentieth century.  Although James Truslow Adams has been credited for the phrase “American Dream;” White and Hanson attribute its first use to Walter Lippmann, who used it in his 1914 book “Drift and Mastery.”  Adams’ 1931 work “The Epic of America” was the first widely accepted promotion of the phrase “American Dream.”

Homeownership most likely became a part of the American Dream as the middle class developed and rose in economic prominence.  However, it probably wasn’t until the 1930’s when homeownership and American Dream were associated; when the Federal Housing Authority was established to make owning a home affordable.  Before the FHA, buying a home meant signing up for a short term mortgage with a high down payment; which made renting the only option for most.

Homeownership can also be gauged by the health of the middle class.  As the Amercican middle class fares, so does homeownership.  This is evident from the effects of a recession; when the middle class takes the brunt of an economic downturn, homeowner rates typically suffer as a result.

Homeownership Rates
Homeownership Rates (from census.gov)

Homeownership rates have steadily decreased from a peak approaching 70 percent just before the housing crash, to the current rate of 63.5 percent (census.gov). From the Census October 27th press release:

“National vacancy rates in the third quarter 2016 were 6.8 percent for rental housing and 1.8 percent for homeowner housing. The rental vacancy rate of 6.8 percent was 0.5 percentage points (+/-0.4 percentage points) lower than the rate in the third quarter 2015 and not statistically different from the rate in the second quarter 2016. The homeowner vacancy rate of 1.8 percent was not statistically different from the third quarter 2015 or second quarter 2016 rates.

The homeownership rate of 63.5 percent was not statistically different from the rate in the third quarter 2015 (63.7 percent) and 0.6 percentage points (+/-0.4 percentage points) higher than the rate in the second quarter 2016.”

The decline has been attributed to shrinking middle class, changing demographics, and the residual economic malaise of the Great Recession.  Although the declining homeownership rate seems as if it is a recent phenomenon, it’s actually cyclical.  Anthony DePalma reported for the New York Times about the declining homeownership rate in the post-recession climate of the 1980’s (IN THE NATION; Why Owning a Home Is the American Dream; nytimes.com; September 11, 1988).

The recent research of the future of homeownership by Spader, McCue, and Herbert projected three scenarios (Homeowner Households and the U.S. Homeownership Rate: Tenure Projections for 2015-2035; Joint Center for Housing Studies of Harvard; working paper, 2016).  The low scenario is that homeownership rates continue to decline to a rate of 60.6 percent through the year 2020.  The high scenario is that homeownership rates will once again increase through the year 2025 and peak around 65 percent.  However, they also provide for a scenario where homeownership rates stabilize and maintain at current levels:

The base scenario, which holds homeownership rates constant at their 2015 levels, shows that projected changes in the demographic composition of U.S. households by age, race/ethnicity, and family type will largely offset one another, affecting the homeownership rate only minimally through 2035. Under this scenario, projected household growth will add 8.9 million homeowner households and 4.7 million renter households by 2025, and 15.7 million homeowner households and 9.4 million renter households by 2035. Alternatively, the low and high scenarios produce a range for the national homeownership rate of 60.7 percent to 64.8 percent by 2035, resulting in different levels of growth in homeowner and renter households.”

They concede that the trajectory of homeownership is complex, stating:

“… the homeownership rate’s actual trajectory will depend on how quickly the foreclosure backlog clears, how many foreclosed households reenter homeownership, and whether young households’ slowed rates of homeownership entry persist in future years. Additionally, any major changes in the broader economy, housing finance system, or households’ attitudes toward homeownership may also influence future homeownership rates to the extent that they alter households’ demand or access to homeownership…”

Home owners are more inclined to maintain their homes and neighborhoods, as well as being invested in protecting their home and community; which may account for lower incidences of reported crime. Besides stabilizing communities, many of these benefits may also account for positively affecting home values.

The benefits of homeownership have been well documented and discussed by Research Economist Selma Hepp for the National Association of Realtors®:

“In addition to tangible financial benefits, research has shown that homeownership brings substantial social benefits for families, communities, and the country as a whole. Because of these societal benefits, policy makers have promoted homeownership through a number of channels. Homeownership has been an essential element of the American Dream for decades and continues to be so even today. Some of the documented social benefits include:

  • Increased charitable activity
  • Civic participation in both local community and national issues (including voting)
  • Greater awareness of the political process
  • Higher incidence of membership in voluntary organizations and church attendance
  • Greater social capital generated
  • Greater attachment to the neighborhood and neighbors
  • Lower teen pregnancy by children’s living in owned homes
  • Higher student test scores by children’s living in owned homes
  • Higher rate of high school graduation thereby higher earnings
  • Children more likely to participate in organized activities and have less television screen time
  • Homeowners take on a greater responsibility such as home maintenance and acquiring the financial skills to handle mortgage payments and those skills transfer to their children
  • Lower teenage delinquencies
  • General increase in positive outlook to life
  • Homeowners reported higher life satisfaction, higher self-esteem, happiness, and higher perceived control over their lives
  • Better health outcomes, better physical and psychological health
  • Tremendous wealth gains for homeowners under normal housing market conditions (outside of the terrible bubble/bust housing years)
  • Homeowners not only experience a significant increase in housing satisfaction, but also obtain a higher satisfaction even in the same home in which they resided as renters
  • Family financial situation and housing tenure during childhood and adulthood, impacted one’s self-rated health (in particular, the socioeconomic disadvantaged indicated by not being able to save any money or not owning or purchasing a home are less likely to self-rate their health as excellent or very good).
  • Less likely to become crime victims
  • Homeowners better maintain their homes, and high quality structures also raise mental health -renter-occupied housing appreciates less than owner-occupied housing
  • Housing prices are higher in high-ownership neighborhoods
  • Maintenance behavior of individual homeowners is influenced by those of their neighbors”

As the American Dream continues to evolve, so does the goal for homeownership.  Although many have not been recently swayed by benefits, the cycle may once again reveal the true value of homeownership.

Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Millennials redefining American Dream – and it’s not what you think

home for sale

There is no doubt that the baby boom generation has fueled the housing market for over four decades. That’s right, our vision of the American Dream was shaped by those who are said to have been born between 1946 and 1964. Success was measured against a standard of working at one job or career for a lifetime, buying a suburban house to raise a family, and do it all on a single income.

As time passed and the economy changed, single income families became passé. Many struggled to keep up with the Jones’ and maintain the American Dream. The Dream became twisted into maintaining a lifestyle at all costs, even by financing it with their home’s equity.

In fact this meme was used in a Lending Tree commercial that ran prior to the housing bust. The commercial starts with the character “Stanley Johnson” introducing himself, and then posing with his family proclaiming they are great. The scene pans out to show his home as he continues to describe his four bedroom home being located in a great community. He then shows off his new car. And is proud to point out he is a member of the local club. He rhetorically asks with a smile while grilling in the backyard, “How do I do it?… I’m in debt up to my eyeballs…” And the commercial ends with “Stanley” mowing the lawn as he proclaims, “Somebody help me…”

At the time when the commercial ran, cash-out refinancing was popular. But in retrospect, the dark comedy seems prophetic of what went wrong with the American Dream. And as some have wondered if the American Dream died with the housing bust, it is becoming apparent that the dream is being redefined by Millennials (those born between 1980 to 2000) – and it may not be exactly what you think.

Millennials have been blamed for holding back a strong housing recovery by delaying household formation and not buying homes. But Brena Swanson of HousingWire proclaimed that to be old news in her April 28th article (Hey Millennials — You know nothing about housing finance; housingwire.com). She reported that many housing economists have declared 2015 as the year of the Millennial. Furthermore, she reported that by the end of 2015, Millennials are expected to be the largest home buying group; which may be derived from recent polls indicating that they believe it’s a good time to buy a home.

But don’t blame Millennials if 2015 doesn’t turn out they way housing economists expect. Why should the problems of a housing market be attributed to a generation who refuses to walk lockstep with older generations? Gen-X blogger, Jeremy Vohwinkle, pegged it in 2007 when he wrote about the problems with the housing market being rooted in an antiquated vision of the American Dream (The Real Estate Generation Gap: The Baby Boomers Are Trying to Sell, but Who’s Buying?; genxfinance.com). He proclaimed that the Baby Boom real estate cycle (starter home, upgrade to large home, downsize to retirement home) is not what younger generations want.

So, it’s not that the American Dream is dead, as some have thought; it is just being reinterpreted, most likely being restored to its original intentions. And rather than keeping up with the Jones’, it appears to be that the American Dream for Millennials is focused on increasing their quality of life – and whatever that brings with it.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Is now the time to buy a home?

by Dan Krell © 2010

Today’s economy has a lot of people worried about buying a home. So much so that many would-be home buyers continue to sit it out. However, there are home buyers who are jumping into the market because they feel there is value in home ownership regardless of the economy.

So, is it a good time to buy a home? The answer, of course, depends on your circumstances. However, the basic indicators reveal we are at a time when the combination of historically low mortgage rates and low home prices provide an opportunity not only for real estate investors but for home buyers as well.

First, I’m sure you’ve heard that mortgage rates are at historic lows. Yes it is true that many economists forecasted that mortgage rates would increase through 2010 due to an anticipated global economic recovery. However, many now have conceded that the recovery has stalled; the rudimentary explanation is that economic concerns abroad have affected a domestic recovery. Additional economic pressures and volatile markets continue to suppress mortgage rates, such that it has sparked a new refinancing boom.

Second, home prices remain low. Even though the recent S&P/Case-Shiller Home Price Indices (standardandpoors.com) reveal home price increases in fifteen of the twenty composite cities (including the Washing DC metropolitan area) for what may seem to be the first quarter of gains this year, economists remain cautious in saying there is a housing recovery. As median home prices continue to remain relatively low, the National Association of Realtors Home Affordability Index (Realtor.org) indicates that homes continue to be as affordable as they have been in recent years.

Third, the Trulia Rent vs. Buy Index (truliablog.com) indicates that the Baltimore – Washington area rates relatively low in the index (meaning the costs of owning a home is less than renting). The Rent vs. Buy argument has always been hotly debated, even at the height of the seller’s market. There are those who will always say home ownership is more costly than renting (I suppose a broken watch is right twice a day); and let’s face it, home ownership is not for everyone. If you’re questioning the rent vs. buy issue, you can compare rent vs. buy via a “rent calculator” (available on various places on the internet) comparing the costs of home ownership as compared to renting.

Regardless where the housing indicators point, many home buyers are aware of and believe in the intangible advantages of owning a home.

Additionally, some financial talking heads are now talking about these housing indices and touting real estate as an alternative to volatile markets. Even the venerable Stuart Varney has recently been heard saying that buying a home is smart. (Of course I have to provide a disclaimer that I am not offering financial advice and you should consult the usual suspects of professionals and financial experts before you invest in real estate).

The American Dream of home ownership is not dead; it has just been on hiatus. Working hard to save money for a down payment to purchase your own home is on a comeback. And unlike some who might have you believe that buying a home is a “false economy,” those who know genuine value will always look to own their own home regardless of the economy.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of August 16, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.