Buying A Home: Reading Into The Latest News
Given the hot real estate market, you may be confused by this news. Worse, potential buyers could see this as a negative sign and decide to hold off on buying. But this would be a mistake.
It is important to understand fully what the report is saying. It is true that less Americans own a home today than they did before the recession. However, the reports are skewed by several factors.
The article “U.S. Homeownership Rate Falls to Lowest Level Since Mid-1990s” by Conor Dougherty at WSJ.com explains why home ownership rates dropped:
“The reasons behind the steady decline in home ownership are familiar: As the housing bubble burst, millions of Americans lost their homes to foreclosure as prices fell and exotic mortgages took their toll—triggering a global recession that pushed the unemployment rate into double digits. The loss of jobs led to a second wave of foreclosures that further reduced home ownership.”
Buying A Home: Rates Are Normalizing
Rather, they are dropping back to historically normal rates. During the big real estate boom, home ownership rates soared to record highs.
Home ownership rates hit their peak in 2004, with 69.4% of Americans owning their own home.
If you look at the national rate over the last 30 years (1984-2014), you can see that the current home ownership rate has returned closer to historic norms.
The 63.7% rate is less than a percentage point under the rate in 1985 and 1995.
Other factors have played a role in the decline. According to the MarketWatch.com article “Homeownership rate drops to quarter-century low” by Ruth Mantell:
“Weak income growth and difficult-to-get mortgages are likely behind home ownership drops, experts say.
Home prices that are running higher aren’t helping, either. Nor are the millions of properties that are underwater — these homes are worth less than owners owe for their mortgage — with borrowers struggling to make monthly payments.
However, long-term trends show that the drop in home ownership is actually pushing the U.S. back to “normal” levels”.
Many economists and industry analysts feel that the numbers don’t paint the entire picture:
“The home ownership rate alone is hiding some of the housing recovery’s progress,” said Jed Kolko, chief economist at Trulia, a real-estate site.”
For instance, while the numbers show that more Americans are renting, you have to also factor in that more younger Americans are moving out of their parent’s houses and into their own rental places. This is a great first step towards eventually owning their own home.
The numbers also don’t account for recent college grads that are living with their parents while they search for a job.
Of course, once they find that job and move our on their own, they become part of the rental population, which will push down the home ownership numbers further.
But again, that is a positive step towards home ownership.
US Census Bureau numbers showed that at the end of 2014, new household formations skyrocketed well beyond previous years, as well as historical norms.
Things are going well for recent grads, as evidenced by the most recent employment numbers.
From the WSJ.com article:
“In March, employment among people ages 25 to 34 reached 75.9%, which was close to a five year-high and up from 75.4% a year ago.”
Buying A Home: Renters Feeling The Squeeze In The Rental Market
This age group is a very important part of the equation. They represent the largest segment of buyers and potential buyers.
Their impact can be felt by the fact that their has been an increase on new apartment buildings and rising rents. From the WSJ.com article:
“And, indeed, the improving job market for young people is one reason why there has been a boom in apartment construction and rents.
Last year developers started construction on a little less than one million new housing units, and one in every three of them was an apartment built for rent. Rental rates, meantime, have risen 13% since 2009, according to Reis Inc.”
This has contributed to a tighter rental market, a market that lacks vacancies and is seeing rents soar. From the MarketWatch.com article:
“Meanwhile, the rental-vacancy rate ticked up to 7.1% in the first quarter, clinging close to 7% reached at the end of 2014, which was the slimmest share in 21 years.
High demand has enabled landlords to crank up rents well past broader inflation growth.”
“The strong demand for rental units continues to out-pace what is expected to be a solid rise in supply this year, suggesting that rent inflation should remain firm at least through this year,” said Omair Sharif, an economist with Societe Generale.”
While moving into your own place is a great step towards owning a home, not all will take that step. Younger Americans are renting for longer periods of time, and many will not buy a home anytime soon, if ever.
One factor contributing to this is the massive amounts of student debts many graduates face once they graduate. Between this debt and rising rents, many are not able to save up for a down payment.
Many renters are facing the same squeeze: home prices are going up, but wages are not keeping pace. On top of that, rents are going up as well, so many potential home buyers are simply trying to keep up.
Buying A Home: Things Working In Your Favor
Renters that are thinking about buying a home have a couple of positive factors working for them.
Interest rates remain near their historical lows, and they only need a 3% down payment to buy a home.
Another positive is that lenders have softened their lending requirements, making it easier to qualify for a mortgage.
If you are thinking about buying a home, now is a great time to do so. There are many good signs from the real estate market,
but there are also some potential hazards down the road that could make home ownership more difficult. I will cover those topics in future posts, so stay tuned.
In the meantime, if you are buying a home in the Charleston SC area, then you need the right agent to help you in your search.
Visit my Pam Marshall Realtor website and you can search the MLS, download Buyers Guides, see some helpful videos as well as sign up for a free list of homes emailed to you and updated with the hottest listings that match your criteria.
I will help you understand the process better and know all of your options so that you will be buying a home with confidence.