By: Jaedri Wood
In his best-selling book “Epic of America” (1931), James Truslow Adams first coined the term “American Dream” to mean: “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.” In the 90 years since the term was coined, the relationship between the (North) American Dream and homeownership has drastically shifted. Currently, home ownership is a reality for the few, and remains just a dream for many. In an attempt to make homeownership more accessible, and make life richer and fuller for everyone, the federal government has focused policy efforts on affordable housing, accessible mortgages, and regulatory lending, to name a few. In the past year, there has been yet another shift in home ownership ideals and realities due to the COVID-19 pandemic—reinventing how North American’s view home ownership and how it fits into their “dream” once more.
For many, home ownership comes with a sense of pride and achievement. The motivation to make a house a home is part of the reason why home ownership rates have remained steady for the past two decades. According to the U.S. Census Bureau, the nation’s homeownership rate fell from 66.2 percent in 2000 to 64.2 percent in 2017, but has overall varied very little since 1960. In fact, despite the economic hardships the pandemic has brought, the homeownership rate increased substantially in the second quarter of 2020—hitting almost 68 percent; the highest level observed since the third quarter of 2008. For context, in the first half of 2020, it took just a few months for the homeownership rate to rise by about 3 percentage points. Before, it took eight years for the rate to increase 4 percentage points to its highest point in 2005. Why has there been a rising interest in home ownership over the past year? Simple: the pandemic, remote work, and extremely low interest rates crafted the perfect recipe for more renters and first-time homebuyers to enter the housing market.
City folks are trading their cramped apartments for more space as remote work and distance-learning for students have become commonplace. People are also spending less on discretionary purchases, such as dining out, because of state and national restrictions over the past year. Reduced spending means more take-home earnings that can go towards a down payment, or home improvements. However, the sudden shift towards home ownership is not beneficial for everyone. The boom of the housing industry and lower interest rates are a privilege that few have. As Alanna McCargo, the Vice President of the Urban Institute’s Housing Finance Policy Center states: “It’s the two worlds right now. There’s a whole lot of people that this pandemic is annoying or just a nuisance and then just a huge part of the population in this whole other place of distress and despair.” While mortgage applications in 2021 are up 33% compared to one year ago, 9% (approximately 4.75 million U.S. households) are in forbearance. More affluent folks will likely take advantage of the current market, while low-income earners will rely more on governmental assistance to stay afloat. This duality comes from the success of a brutal sellers’ market.
If you are currently searching for a home, you know your options are limited. As people continue to opt for more space, land prices go up and houses continue to gain more value. This means that homes are selling for much more than the list price. As Redfin reports: for the week ending March 7th, the sale-to-list price ratio rose to 100.1%, the first time that ratio has gotten so high in Redfin’s data collection dating back to 2016. Frankly, there are too few homes and too many people who want them, which is driving homes prices up even more. In the four-week period that ended March 7th, the average asking price for newly listed homes was $349,975 — a record high. What does this mean for the dream of home ownership? Mortgage and real estate companies should take this opportunity to focus on the disenfranchised communities in the current market. As Adams noted, the dream of home ownership is to make life richer for all, not richer for the few. Although this is a prime market for sellers, it is a brutal one for buyers. The economic repercussions of the pandemic are long lasting and have negative effects for many. When houses go for more than their asking price, we need to keep in mind the less-affluent communities that are being priced out of owning a home. In effect, being priced out of achieving their potential dream. While there is no short-term solution for the housing shortage, we can adapt our narrative to represent more accurately what is going on. This is a great market for some, but a harsh one for others. So, next time you hear how good the housing market is, ask yourself: good for who?