Young Buyers Losing Out in Housing Mart
At a time when sales of new and existing homes are at near-record levels, a coincident and ironic decline is taking place in home ownership among young American families.
For the first time in four decades--since the hectic construction binge following the end of World War II--the home ownership rate has dropped.
In 1980, the rate had peaked at 65.4%, culminating the rush to buy during the inflationary late-1970s. Since then, it has dropped to under 64%. In a nation with more than 239 million population, that drop of 2% becomes a very significant figure. Furthermore, an additional 400,000 couples would own their homes today if the home ownership rate had remained at or close to its 1980 level.
The expected continuing drop in home ownership opportunities--because of a stand-off between low interest rates and rising home prices--may also emerge as a very significant political issue in the 1988 presidential elections, according to an analysis of the issue by Kent W. Colton, executive vice president of the National Assn. of Home Builders.
The falling rate is most evident among the nation’s first-time home buyers. They will be asking themselves “whether the quality of their lives is improving or declining,” suggests Colton who is a former staff director of President Reagan’s Commission on Housing.
Assuming that in Colton’s example there would be two voters per household who had not been able to buy a home, there would be “800,000 disillusioned voters.”
“Because housing ranks side by side with educational and career opportunities as key issues among young voters, those who have difficulty in purchasing a home and are faced with the possibility of never matching the housing standards achieved by their parents, are likely to go to the polls disillusioned and looking for new political leadership,” he said.
When Colton considered various age brackets, the decline was even more graphic over the last decade. Among households headed by those in the 25 to 29 age group, home ownership fell from a rate of 43.1% in 1975 to 34.3% in 1985. For households in the 30 to 34 age group--a prime first-time buyer segment--the rate fell from 62.2% in 1975 to 53.6% in 1985.
Among the estimated 94 million eligible voters in the next national elections, Colton noted, will be “34 million parents with children under 18 who are wondering whether their children will ever be able to buy their own homes.”
Without question, it is much more difficult today to buy a starter home than it was in Mom and Dad’s time, or even 10 years ago, principally because housing costs have risen faster than family incomes.
For instance, in 1975, just before the swell of inflation began to tell on prices, median family income was pegged at $13,719, and the typical single-family home was priced at $42,700. An annual income of $15,775 would qualify the would-be buyer for a 90% loan at 9%. In 1985, when median incomes doubled to $27,735, the same house cost $92,200, up 116%.
Today, with interest rates falling below 9%, and in all cases under 10%, income must be in the upper-$30,000 range, up by more than 130% over the 1975-priced dwelling.
The ups and downs of interest rates change the affordability factor in home buying, and when mortgage rates hit 17% six years ago, sales virtually stopped when would-be buyers could not qualify. That historic period led to some sociological changes, Colton said.
Many households accepted trade-offs to make home buying a possibility, he said, as they “borrowed from their parents (not entirely new), delayed having children, devoted a much larger portion of their take-home pay to cover housing expenses and increasingly relied on a second wage earner. Since 1970, the percentage of married households with two wage earners has increased from 44% to 62%.”
Many parents have expressed criticism of their offspring--including today’s yuppies--who, unlike Mom and Dad, are not willing to start family life in a cozy/romantic, if tiny, one-bedroom apartment.
Buying a first home, Colton said, has always been difficult for most families, requiring “thrift, patience and sacrifice--virtues that are worth cultivating. But the issue today is how much more can young households be expected to give up to join the ranks of home ownership.
“There is a limit to how far households can stretch their budgets to purchase a home. Furthermore, those limits are being reduced by lenders and mortgage underwriters who have tightened qualifying loan standards because of concerns regarding mortgage defaults.”
Aside from parental desire that sons and daughters have their own homes, Colton believes that all homeowners have a vested interest in “the entire housing chain.” The industry is the locomotive of the national economy, and without an essential, active housing market, everything suffers, he said.
“Ultimately, the cost of housing influences where we live and how well we live,” he said.
For instance, “ . . . continued slippage in home ownership rates could have far-reaching implications for American life styles and living patterns in general. More and more college graduates could be forced to return home instead of striking out on their own. Others might double or triple up with friends. Decisions to marry or have children could be postponed. Job opportunities could be rejected, particularly when it involves moving from an inexpensive market to a high-cost one.”
The answer to reversing the trend of declining home ownership will require a concerted and coordinated effort on the part of government at all levels, he believes.
“During this age of runaway federal deficits, fewer federal resources will be available for housing, and therefore builders, lenders, realtors and state and local governments will have to shoulder a greater share of the challenge of improving the housing affordability equation.
“But to get the process rolling, the federal government--including the Administration and Congress--must first reconfirm its commitment to housing.
“Housing has long been a top priority to the American public. Surveys conducted over the last several decades have reconfirmed the importance of home ownership and affordable housing.
“Housing must be put back on the national agenda as an issue of critical importance, so we can begin to address the issues of stabilizing mortgage interest rates at affordable levels, strengthening the mortgage finance system to guarantee an uninterrupted supply of credit for potential buyers, promoting regulatory reform at the federal, state and local level to cut construction costs by thousands of dollars, and finding equitable ways to finance roads, sewer treatment systems and other infrastructure facilities required to construct new housing developments.”
He concludes:
” . . . in a comprehensive, rather than a piecemeal fashion, the U. S. can reverse the current downward trend in home ownership and maintain its status as the best-housed nation on earth. But the time to act is now--not 10 years from now.”
