As U.S. Home Ownership Hits a 20-Year Low, Can the Recovery Be for Real?
A number of pundits continue to say how well the economy is doing, that inflation and unemployment are under control, that jobs are being created at a rapid and consistent pace, and that our economy is growing at rates not seen in more than a decade.
Depending on your statistics and perspective, that may seem true. But just released data from the U.S. Census Bureau paint a different picture, questioning a fundamental measure of economic health – home ownership levels — which begs the question, is it all a mirage?
According to the USCB, home ownership dropped to a 20-year low of 64.5% in 2014, having been on a continual decline since 2004, when the rate stood at 69 percent. The last time the rate of home ownership dropped below 64 percent was in 1990. Given the past 10-year trend, there is every reason to believe that the decline will continue. 2015 could see that figure dip below 64 percent for the first time in 25 years. So, if everything is apparently going so well with the U.S. economy, why is home ownership continuing to fall?
One reason is a combination of lower employment rates among new college grads and millennials more generally, who are either unemployed, or severely underemployed.
According to the New York Fed, more than 11 percent of all student loans are more than 90 days overdue, an indication that what was the case prior to the Great Recession — that 30-year-olds earned more and could afford more mortgages — is no longer the case.
Today, according to the Fed, those under 30 with student debt are less likely to qualify for a mortgage than those without debt. And if young people can’t get in the housing market at a young age, they are likelier to have difficulty doing so later on, which has a knock-on effect.
If you have tried to get a mortgage loan lately, you will know it is next to impossible, without pristine credit and virtually no debt. How many Americans can say that? According to 2014 survey by Bankrate, more than a third of working age Americans haven’t saved any money toward retirement, and 26 percent of 50-54 year olds and 14 percent of those over 65 have no savings at all. This is evidence that many potential buyers are frozen out of the marketplace. Even those with a job and enough money for a down payment may be locked out because their credit score is not high enough, or they may not have a long enough track record of performance to satisfy banks’ requirements.
But the freefall in home ownership rates was occurring long before the Great Recession began. Potential buyers have proven to be conservative in how they choose to invest their money, and when. If consumer sentiment were truly high and had endurance, it would be reflected in higher rates of home ownership. Surely, the Great Recession removed the illusion many people had that owning a home was a pathway to future wealth creation. Today, it is more of a way to simply stop throwing money out the door on rent, and of taking advantage of one of the few tax deductions ordinary Americans can claim.
Based on USCB data, the rate of new home ownership reached a 50-year peak of 1.4 million units in 2005. That dropped to about 300,000 in 2009 and has only slowly begun to recover. We are still way, way below the peak, and may never see anything like those levels of home sales in our lifetimes. Similarly, new housing permits are well below their 2005 peak, and are currently at levels we saw 20 years ago.
Until we can honestly say there is genuine and sustained growth in the housing market — not just a ‘mild’ recovery — we cannot honestly say that our economy is in good shape. Owning a home will remain just a dream for tens of millions of people in the U.S. for the foreseeable future. Let us hope that the modest recovery that has begun can indeed be sustained. With so many countries around the world entering either a severe economic downturn or a recession, it may not be long before the U.S. is forced to address its next recession. History dictates we are due for one. Expect consumer sentiment to decline this year, and for home ownership to continue its decline.
This article was originally posted in The Huffington Post.