“Those who are financially capable and willing to assume the responsibilities of owning a home should have the opportunity to pursue that dream,” according to William E. Brown, President of the National Association of Realtors in a statement accompanying a homeownership research.
The NAR dug deep into a declining homeownership rate in the U.S. “despite steadily improving local job markets and historically low mortgage rates.” What came up are five reasons that led the U.S. homeownership rate to approach a 50-year low mark in the second quarter of 2016 although it has slightly recovered to 63.6 percent during the first quarter of 2017.
Homeownership trends are the subject of Hurdles to Homeownership: Understanding the Barriers, a white paper prepared for the NAR by the Rosen Consulting Group and released at the NAR’s Sustainable Homeownership Conference in the University of California, Berkeley.
Five Homeownership Barriers
The study identified the following barriers to Americans buying and owning a home:
- Mortgage Availability
- Student Loan Burden
- Post-Foreclosure Stress Disorder
- Single-Family Affordability
- Hurdles in Single Family Housing Supply
According to the study, credit standards have to go back to normal standards with mortgage lending substantially decreasing since the Great Recession. Proof are borrowers with good to excellent credit scores that are not getting approved for a mortgage as easily as they could have in 2003 when lax lending guidelines were the norm.
Younger American households are already carrying the burden of student loans on their shoulders. The study found that as of 2015, about 68% of bachelor degree graduates had a student loan averaging $30,100. The rising student loan level makes it difficult for someone with a student loan to save up for a down payment on a home and pay his/her monthly mortgage payment.
“Lack of inventory, higher rents and home prices, difficulty saving for a down payment and investors weighing on supply levels by scooping up single-family homes have all lead to many markets experiencing decaying affordability conditions,” said the NAR.
This lack of inventory, however, is a persistent problem in the single-family housing market. Construction can’t keep up with the demand for homes. Per Kenneth T. Rosen, one of the authors of the study, “The insufficient level of homebuilding has created a cumulative deficit of nearly 3.7 million new homes over the last eight years.”
Foreclosure is also not to be taken lightly for the millions of homeowners who lost their homes and jobs and those who witnessed their families and friends go through such hardships. The experience left lasting psychological effects referred to as post-foreclosure stress disorder that could impede their decision to return to homeownership.
The Future of Homeownership
The study believes that historical precedents can guide in shaping the nation’s future housing policies. It cites the Great Depression and World War II, which gave birth to a variety of government housing programs characterized by low down payments and discounted mortgage rates and backed by federal guarantees and mortgage insurance.
In the wake of the Great Recession, for instance, national homeownership rates plummeted and wiped out the gains of some three decades preceding it. This is evidenced by 2016 having a million homeowners less than in 2006 despite adding 11.8 million new households. A previous study by the Rosen Group explored the effects of the Great Recession on homeownership.
“While there are numerous housing programs that continue to serve millions of Americans today, we believe that the innovative and wide-ranging spirit of earlier programs should be revitalized to once again champion the American Dream in the 21st Century,” Mr. Rosen, et al. wrote in the study.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.