A white paper released by the National Association of Realtors revealed why the American dream is becoming harder and harder in the Land of the Free.
In Hurdles to Homeownership: Understanding the Barriers, it is found that the collective of affordability challenges, soaring student debts, tight credit conditions, and the scarcity in housing inventory are keeping US homeownership at a 50-year low despite the positive jobs reports and the low mortgage rates.
Let’s break these down into detail.
Post-Foreclosure Stress Disorder
Having a foreclosure not only damages your credit score; it could also breed negative sentiments towards homeownership. For the millions of people who lost their homes during the recession, many have not only suffered the financial burden but also the psychological and emotional damage that came with the hardships – losing their jobs, their homes, living hand-to-mouth. The experience may have left many families and individuals forever skeptical about giving homeownership another shot.
Tight Mortgage Credit Standards
Following the recession, banks and lenders have tightened on their credit standards, making homeownership extra difficult even for high-tier credit scorers. This alienated a lot of the borrower base. With the Dodd-Frank Act putting a strict demarcation on qualified and non-qualified loans, it’s hard to get financing especially if you have been affected – one way or another – of the crisis.
However, in the past few years, many lenders have slowly went back to tapping into the pool of borrowers that have been casted out by the strict guidelines. Many lenders are now easing on their standards to make homeownership more accessible to more people. But apparently, the weight of the trauma from the recession still lingers among the majority.
Student Debt Burden
A total of $1.4 trillion spread over 44 million borrowers is how grave the current student debt situation is in the United States. This burden is robbing many borrowers’ opportunities to save for a home down payment. With the increase in student loan debt repayment costs and the almost flat increase in wages, it’s not a surprise why homeownership remains a far-off dream to many Americans.
Declining Single-Family Housing Affordability
In a recent survey by ATTOM Data Solutions, it is found that one in every four housing markets is found to be less affordable today than their historic averages. Prices are bound to march up, especially when current housing inventory remains scarce while demand surges. Of course, the general assumption among borrowers that now is a good time to purchase does not help. The continued fuel in demand puts too much pressure on supply, pulling prices to record-high numbers. How naively optimistic it is that the majority also believe prices will never go on rising in the coming year.
Insufficient Single-Family Housing Supply
It’s not news anymore. There’s a shortage of housing supply in the US. Housing starts still struggle to keep up with the demand in inventory. Potential buyers looking to buy a home now could find themselves with multiple rivals for a single property, leading to bidding wars which is usually a stressful process for many. The competition could also increase the asking price for a property and the property per se could be sold for much more than what it’s practically worth. For some, it’s better to step back than bet their dollars on fixer-uppers.
The future of homeownership
NAR President William E. Brown is not happy with the situation, saying the trend must be reversed to the opposite direction. He emphasizes the need for access and opportunity among financially capable and responsible borrowers.