Kansas Sebastian
With only two months to move out of her Houston apartment, twenty-eight-year-old Megan Angerstein was desperately looking for her first home. Her $220,000 budget was small for a major city, so she was eager to hop on a newly listed two-bedroom, two-and-a-half bath home in San Marcos.
She put down $1,000 in “earnest money”—a deposit that helps convey serious interest in a property to sellers—on the spot. “I wanted to think on it and look at one other home,” she told CNN. “But I knew there were three other appointments after me, so I put the money down. Good thing I did. The people after me would have taken it.”
Angerstein’s story is an outlier in the current market, where mortgage and rent prices have skyrocketed, leaving affordable properties impossible to find for many.
Homeownership has, for better or worse, long symbolized fulfillment of the elusive “American dream.” And it still carries a lot of weight today: A 2022 poll by Bankrate found that nearly three-quarters of Americans place owning a home above career, family, and college as a sign of prosperity.
That dream, however, may be increasingly out of reach for lower- and middle-income households as first-time home buying rates decline to the lowest level in over thirty years. The National Association of Realtors reports a 38 percent decline in first-time home buying in 2022 over last year and estimates that about 2.5 million households—or 15 percent—of those shopping for a first home will be shut out of the market this year.
“Homeownership will continue to decline, and this is consistent along all age and ethnicity groups,” Jun Zhu, an assistant professor at Indiana University specializing in housing policy and a fellow at Urban Institute, tells The Progressive. “The group that is most in the spotlight are people who are thirty-five to fifty-four today—they were actually twenty-five to forty-four in 2010, when the financial crisis dramatically slowed household formation and homeownership attainment.”
These millennials, Zhu explains, “were unable to enter the market at the same rate of the earlier cohort. And we know that after the financial crisis, credit was pretty tight. Home prices increased dramatically—more quickly than income over the last decade.”
When young people miss the boat on buying their first homes, it can be even more difficult to do so later in life “It’s very hard for those younger adults to afford a home and take on a mortgage,” Zhu adds.
Zhu and Laurie Goodman are co-authors of a 2021 study on the future of homeownership published by the Urban Institute. By looking at why homeownership rose from 44 percent at the end of the Great Depression in 1940 to 62 percent in 1960, they found that this increase in homeownership rate was assisted by factors like “the advent of the low-down payment, thirty-year amortizing mortgage created by the Federal Housing Administration; support for veterans under the GI Bill; and increasing incomes.”
But this upward trend, of course, didn’t last forever. The study explains how “over the next 45 years, the homeownership rate gradually rose from 62 percent in 1960 to a high of 66 percent in 2000 and dropped to 65 percent in 2010.” In recent years, there has also been an ongoing shift in the relative share of homeowners to renters.
Urban Institute
Goodman and Zhu project the overall total number of both owners and renters in 2040 to reach 140.1 million, and also expect the proportion of owners will continue to fall to 60.8 percent—below the 1990 level.
The authors also note that “nonfamily households” are more common today, which the St. Louis Federal Reserve Bank estimates reached 45 million in 2020. They argue that this reflects “an increase in the age of first marriage; a decrease in the marriage rate; an increase in the propensity of those who were not married to live alone or with non–family members; an increase in life expectancy, leaving more older adults in single-person households; and a sharp increase in the divorce rate.”
Making matters worse for first-time homebuyers, U.S. home prices surged 19.7 percent this July. Mortgage Reports found that “The long-time average for 30-year mortgage rates is over 7 percent. So even though today’s mortgage rates are hovering around 5%, they’re still a good deal by comparison.” (In 2020, the rate was 3.1 percent).
CNN reported in March that home prices in Tampa, Florida, jumped 34.8 percent from the year before; in Phoenix, they were up 32.4 percent; Miami saw an increase of 32 percent. And, the article notes, “seventeen of the 20 cities reported higher price increases in the year ending March 2022 versus the year ending February 2022.”
There has also been a significant decline in new listings from sellers, according to Realtor.com. As CNBC reports, “Those listings have been below historical levels for eight of the last 10 weeks. As a result, active inventory, which is the total number of homes for sale, was down 28 percent from a year ago.”
Andy Alloway, owner of Omaha-based Nebraska Realty, told Forbes that he worries that “We’re facing a housing crisis—from supply chain issues to two decades of underbuilding.”
“Investors are coming in and pushing out the first-time buyers,” Lawrence Yun, National Association of Realtors’s chief economist, said in a statement. He also highlighted how “Rising rents and repaying student loan debt makes saving for a down payment more difficult, especially for young adults who’ve experienced limited job prospects and flat wage growth since entering the workforce.”
The Federal Reserve Bank of New York noted that “a solid increase in total household debt in the first quarter of 2022, increasing by $266 billion (1.7 percent) to $15.84 trillion.” It details increases in mortgage balances, credit card balances, and auto loan balances that “now stand $1.7 trillion higher than at the end of 2019, before the COVID-19 pandemic.”
Zhu acknowledged that her study with Goodman “did not specifically focus on the first-time buyer.” However, she says that they expect to see “an increase in non-white homebuying, especially for minorities, notably Hispanic and Asian” individuals. “[These groups] will compose a larger share of the population,” she says, “and, therefore, first-time homebuyers in the coming decades.”
“The decline in homeownership among age groups is particularly pronounced among [Black people]. It’s dramatic,” Zhu adds. NAR also reports that Black homeownership rates dropped to 43.4 percent in 2020.
For most of the last century, homeownership has symbolized the fulfillment of the American Dream. A 2022 poll found that nearly 75 percent of Americans place owning a home above career, family, and college as a sign of prosperity. But the decline in available homes for first-time buyers, significant price increases, and increasing mortgage costs, may signal the end of that dream.