The consensus is that if more Americans can sustainably buy homes, the economy and taxpayers will benefit.
As the nation’s homeownership rate hovers around a 50-year low, it’s time to acknowledge and start addressing the range of issues suppressing the market today, according to individuals at a Realtors and S&P event this month.
“When there is no hope for owning real property, we are taking a huge step backwards for the future of our country,” said Senator Heidi Heitkamp (D-ND) in her opening remarks.
Politicians and industry experts at this event outlined a number of key issues that need to be addressed to improve homeownership rates and market stability in the U.S: Buying incentives, student loan debt, and affordability.
But most of all, it’s important that the complexity of the housing market never be ignored. There’s not just one issue to be addressed, or a single solution that will fix it all.
For example, leading up to the 2007 housing crash, home buyer enthusiasm peaked as mortgage rates were low and investment return rates high. It was an environment that many Americans felt was too good to pass up.
Many also feared getting priced out of the market if they didn’t buy right away and take advantage of the current market state, a phenomenon dubbed “buyer’s panic,” according to economist Dr. Robert Shiller. Shiller noted that public sentiment about the risks of home buying peaked in 2006, but homes were still bought left and right.
Chairman Jeb Hensarling (R-TX) of the House Financial Services Committee observed that sustainable homeownership plays a key role in protecting the overall economy, citing the “unsustainable housing finance rollercoaster” that caused the Great Recession, a “lost decade” of lost economic growth.
“The lesson is clear: Housing unsustainability doesn’t just create unaffordability,” stated Rep. Hensarling. “It can create economic catastrophe.”
Overall, interest rates and tax law aren’t the only market drivers, something industry leaders should keep in mind as tax reform legislation enters the House and the economy continues to slowly bounce back from the Great Recession.
Post-recession debt burdens aren’t helping the nation’s homeownership rate, either. Student loan debt is suppressing young adult homeownership in particular.
“Eventually, time will start to soften the impact of those high student loans,” Beth Ann Bovino, chief U.S. economist at S&P Global Ratings, explained during a panel. “Jobs are coming around, wages are picking up.” But this is not to say the issue isn’t having real ramifications right now.
For those struggling to repay student loan debt, homeownership is simply not an option right now, according to Jessica Lautz, managing director of survey research and communication at NAR.
Meanwhile, many who are managing their student loan debt well aren’t in position to buy a home, either, a trend also identified by the National Association of Realtors 2017 Profile of Home Buyers and Sellers.
Another panel comprised of Dr. Lawrence Yun of NAR, Alex Nowrasteh of the Cato Institute, and Boyd Campbell of Century 21 discussed affordability concerns involving the supply and demand issues facing the housing market today.
Debt burdens aside, homeownership is just becoming too expensive for many Americans. “Prices have risen roughly 40 percent in the past five years, while people’s income has risen at a much slower rate,” Yun said. “This rise in prices forces an affordability concern.”
This particular issue isn’t just a real estate matter. The labor market plays a role as college-educated workers are priced out of areas where the job market is strong but housing prices are high.
As the number of families buying their first single-family homes remains well below the 50-year average, conversations about the range of issues impacting the housing market must continue.
“Prospective homebuyers face headwinds from the market, in the halls of Congress and in their own family’s budgets,” said NAR President Elizabeth Mendenhall, a sixth-generation Realtor and CEO of RE/MAX Boone Realty. “We can’t solve them all, but we know more can be done to smooth the way for creditworthy borrowers who want to own a home.”