Monday, June 1, 2015

Is the American Dream of Home Ownership Waning?

I can remember growing up in the ‘60s listening to my parents tell me that I needed to own a home. It was the American Dream and they wanted it for me. Before Peg and I got married we found a small house and made an offer on it. Before closing we were sitting in a diner asking ourselves if we could really afford the $116 a month payment. We figured we could and closed on the house.

Until recently, Americans felt they had achieved financial success if they owned a home, could put their children through college, had secure and stable retirement income and had upward mobility. However, recent polls and surveys suggest that, for many Americans, homeownership is no longer a core component of the American Dream.

A recent survey found that most Americans are now more concerned about having enough money to retire comfortably than about becoming a homeowner. Homeownership was the top indicator of financial success for only 11% of the adults who were surveyed by the American Institute of CPAs.

More than twice as many (28%) felt that having enough money to retire comfortably was most important, and 23% put being able to give their children a debt-free college education at the top of the list.

Most millennials prefer and intend to buy a single-family detached home. Likewise, as rents continue to increase, some renters may choose to buy a home rather than continue to pay ever-rising rents.

Still, the bad news about homeownership by far outweighs the good. Even though most millennials desire to own, more than 40% believe they cannot afford to make a down payment or pay for the costs associated with buying a home, and 47% doubt that their credit is good enough for them to qualify for a mortgage.

Millennials are not the only renters worried they cannot afford to buy. A recent poll shows that 64% of all renters indicated it would be hard for them to obtain a mortgage.

Americans of all ages are renting rather than buying, mostly because wages have been stagnant for all workers except the highest earners for about three decades, and because wages have not kept pace with home prices. In addition, potential first-time home buyers and those with blemished credit are being shut out because stricter lending standards make it harder for them to qualify for a mortgage loan.

The US homeownership rate has now reached a 20-year low. At the same time, the rental rate has risen to an almost 30-year high. Americans, and particularly younger adults, are avoiding homeownership for a number of reasons.

Many millennials watched their parents lose their homes during the housing crash, while others witnessed home values plummet during and after the recession. Given the massive wealth losses families suffered, younger Americans are understandably more cautious when deciding whether buying a home is worth the long-term commitment and risk.

Millennials are also less likely to be (or aspire to be) homeowners because so many of them are buried in student loan debt – making them less credit-worthy for a mortgage.

The millennials who report that they hope to be homeowners one day are delaying home buying at rates that exceed those for baby boomers and prior generations at their age.

As they are now the largest cohort of American workers and, thus, the biggest group of potential new home buyers, the housing market will never fully recover until they start buying homes.

All this is good news for the modular home factories and their builders that have seen a huge increase in investors and developers building multi-family rental units. Builders may want to develop a marketing plan targeting this niche of investors and developers that are looking for ways to streamline the building process and save time and money.

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