CREDIT TO: CHARISSE JONES, USA TODAY, JUNE 23, 2022.
When Summer Wrenn moved home to North Carolina, she had buying a house on her mind.
“I grew up with my mom and her husband and they never owned a home and I always had a dream of it,” says Wrenn, 20, who relocated from New Jersey in the fall of 2021.
But her husband thought they should rent first. Now, as Wrenn watches housing prices continue to rise, she finds herself between a rock and a hard place, worried about soaring rent and not sure when she’ll be able to buy her own home.
“I thought the next thing I’m moving into, it’s going to be my house,” she says. “And I keep seeing the date of when that would happen getting pushed further and further away.’’
For the past two years, home buyers have been immersed in a frantic rush to purchase property as interest rates dropped to historic lows.
But amid all the chatter about bidding wars, cash deals and so-called Zoom towns, something more fundamental was at work.
Homeownership is at the core of the American dream. A home is the most valuable asset many of us will ever own, a pool of equity that can be tapped to pay a child’s tuition or cushion our retirement.
And the central role homeownership plays in our financial security is perhaps never more plain than when we see so many struggle to make it a reality.
“I definitely think more first-time home buyers are being priced out of the real estate market,” says Taylor Marr, deputy chief economist with the real estate brokerage Redfin. “That’s pretty troubling because that’s the number one way to build wealth.”
So, are we potentially becoming a nation of renters?
Rising property prices may be a key reason why younger adults have been waiting longer to buy a home than previous generations.
In “the last 20 years, we are seeing that young adults are less likely to buy at the prime home-buying age,” says Jung Hyun Choi, a senior research associate at the Urban Institute’s Housing Finance Policy Center
Her research found that in 2019, home ownership rates for households headed by adults between 25 and 40 years old were roughly 8% lower than the ownership rates for that same age group in 2000.
“There’s a delay in home ownership,” she says. “I think increasing home prices have definitely made a contribution to that.’’
That delay can have ramifications that ripple out for a lifetime.
Buying a property at a younger age allows you to accrue more wealth through equity, and increases the chance you will be able to pay off your mortgage before you retire, Choi says.
And owning your own home often means your children will purchase homes as well, continuing the building of family wealth.
That can have a particular impact on the nation’s racial wealth gap, a chasm created by discriminatory practices and policies that have created disparities in job security and income, and made it harder for Black Americans in particular to acquire or hold onto property.
The net worth of white families was $171,000 in 2016, compared with Black families’ net worth of $17,150 according to the Brookings Institution.
In a November 2018 Urban Institute report co-authored by Choi, 42% of young white adults ages 18-34 owned homes between 1999 and 2015, the highest level of any racial or ethnic group. Just 18% of their Black peers were homeowners. The report’s analysis found that half of that 24% gap could be attributed to whether their parents were homeowners, and how wealthy their parents were.
“We know white households are more likely to be homeowners,” Choi says, noting that many young people get the money for a down payment from their parents. But “our country’s becoming more diverse … That means a greater proportion of the population are not able to transfer wealth to their children. That could also affect our country having a lower home ownership rate in the future than what we’ve seen in the past.’’
The surge in housing prices has been fueled in part by a shortage of homes to meet demand.
In the first three months of this year, the median sales price of homes soared to a record $428,000, according to a Zillow survey. And almost half of homes sold in April went for more than their listed price, up 37% over that same period in 2021.
Prices continued to soar last month, with the median cost of an existing home 14.8% higher than one year ago.
But that was down from the 16.1% leap that occurred in April. As inflation surges, and in the wake of the Fed raising interest rates this month, the hot housing market that saw buyers offering over the asking price and sometimes paying in all cash is finally showing signs of cooling.
Bidding wars are easing, with 57.8% of offers in May facing competition, down from 69% a year ago, says Marr. And nearly 1 in 4 homes that are for sale dropped their price within the last month, he says.
“As the market cools it is getting more favorable for buyers,” Marr says.
But potential home buyers are facing other headwinds. Consumers are pulling back on spending because items ranging from gas to groceries are costing more. And borrowing the money to buy a home has gotten significantly more expensive, with the 30-year fixed mortgage interest rate hovering above 6%, the highest since 2008.
“Even if they can win an offer,” Marr says of would-be home buyers, “closing the deal … is becoming more challenging.’’
Meanwhile, rents continue to rise, increasing 5.2% from 2021, according to the Labor Department’s most recent consumer price index report.
“In the last year or two, we have seen … the number of renter households going up,” says Kate Reynolds, a principal policy associate with the Urban Institute.
By the first quarter of this year, there were over 1 million more renter households than two years earlier, according to the institute.
The uptick “is pretty significant,” Reynolds says, and “mostly driven by the fact that many renters, especially higher-income renters who would otherwise look at buying, are probably not … because of the high prices.”
Rent spikes aren’t likely to end any time soon.
“We surveyed small mom and pop landlords, and about 75% are planning to increase rent on the unit in the next 12 months,” Choi says. “It’s likely this trend will go on for at least a year, which is very concerning.‘’
Paying higher rent can make it harder to save for a down payment on a home, and also put a renter’s credit rating in jeopardy if they struggle to meet those higher monthly payments, housing experts say.
Nelvia Bullock, a real estate broker in Charlotte, North Carolina, has seen the surge firsthand.
“Rents have skyrocketed,’’ she says. “It’s more expensive in Charlotte to rent than it is to buy.’
Wrenn and her husband, Joseph Risko, who are Bullock’s clients, prequalified last year for a loan that would enable them to buy a $400,000 home. But Wrenn says as time winds on, that amount buys less and less, pushing them toward two-bedroom homes when they’d prefer a three bedroom in preparation for one day starting a family.
Now she is worried that her rent will significantly rise too. She and her husband currently pay $1,350 for their two-bedroom, two-bathroom unit. But their lease ends in September, and a downstairs neighbor in a similar apartment says the landlord is trying to raise their rent to $1,750.
“The rent is starting to reach what we used to pay in Jersey,” says Wrenn, who works for the Red Cross. She added that if she and her husband move to another rental, deposits and fees could be as much as the down payment to buy some homes.
“In an economy like today, the prices are going up, but our wages are still the same,’’ she says.
Home ownership is also key to bridging the wealth gap that divides Black, brown and white Americans.
Historically, discrimination and outright violence have stripped many Black Americans of property or kept them from reaping the full benefits of ownership – from the now outlawed practice of redlining, which denied loans to residents of Black and Brown communities, to horrors like the Tulsa race massacre of 1921, which destroyed the prosperous community known as Black Wall Street.
And bias continues, home buyers and advocates say. In April, a class-action lawsuit was filed against Wells Fargo accusing the bank of mortgage policies and lending practices that discriminated against Black customers, including charging them higher interest rates than white borrowers even when they had high credit scores.
Aqeela Muntaqim, 33, deputy director of the nonprofit advocacy group Mothering Justice, and her husband, Anwaar Muntaqim, a boiler operator, has been looking for a home for a year.
“It is overwhelming just looking at the prices of homes right now,’’ says Muntaqim, a mother of four, who envisions eventually buying a second house and keeping the family’s first home as an investment property. “And then the homes go so fast. We see something nice and we blink three times and it’s pending’’ because there’s been an offer.
She and her husband want to stay in Macomb County, Michigan, where they currently live so their children don’t have to change schools. In addition to four bedrooms, “we want to have a nice yard for our children to play … My mom didn’t purchase her first home until she moved here seven years ago, and she’s in her 50s. I don’t want to purchase my first home when I’m 50 and my children are grown. I want to purchase it now and make memories.’’
Muntaqim’s family has been living with her mother to save money for a down payment and to burnish their credit. Now, with high credit scores and their jobs that pay well, she says she and her husband could comfortably afford a $300,000 home. But most houses that are the size they need cost between $400,000 and $600,000 and would still require more money for repairs.
Then there’s inflation. It’s costing $400 a month to fill their gas tanks, further diminishing the couple’s buying power.
“Sometimes it seems unattainable,’’ she says of buying a home.
Muntaqim, who is Black, is also familiar with stories of lending bias against Black buyers, which makes the process even more daunting.
“All of these things layered together make it really difficult for people of color to actually get into home ownership,’’ she says. “And now you have the rent prices that are just astronomical and it makes you wonder, ‘I can’t afford to pay the rent. I can’t afford to pay the mortgage. So where do I go and what do I do?’ “
There’s clearly a need in our country for more housing, particularly homes that moderate-income Americans can afford. But “there’ll be some time until the supply catches up with the demand,” says Choi.
In the meantime, other steps can be put in place to help more people get a stake in the American dream.
Past housing payment history, for instance, has been found to be a better predictor of a person’s likelihood to keep up with mortgage payments than the FICO score typically used to determine credit status. Those payments could play a bigger role in determining loans to potential home buyers.
Additionally, offering down-payment assistance, particularly to first-time buyers whose parents didn’t own property and those who come from communities that have faced housing and lending discrimination “could be a better approach than just looking at the income limit,” Choi says.
Our society has many needs for a social safety net to catch those who are struggling. But if we can do a little more to help people buy their own homes, we will go a long way toward helping them and their families create a safety net of their own.