(Newswire.net — October 25, 2016) — In the second quarter of 2016, the percentage of American citizens who owned homes stood at 62.9% of the total US population. This was a drop from the previous quarter which had a 63.5% homeownership records. Economic analysts argue that the fall was not a statistically significant one since it was within the acceptable margin of error of 0.5%. However, considering that there has been a continuous downward trend since 2005, the new low cannot be ignored.
Historical Perspectives
After the Great Depression, home ownership in the US surged up for the following two years; buoyed by the improvement in transport systems from urban centers where majority of people worked to their suburbs where they lived. The improved infrastructure made it easier for individuals to community from outside the towns to their job centers and hence they were able to buy homes in the cheaper suburbs and move out of the congested urban settlements.
On June 2nd 1944, the Servicemen Readjustment Act of 1944 also known as the GI Bill was signed into law by the then US President Franklin D. Roosevelt. The bill was meant to resettle thousands of veterans who were coming from war and enable them to transition into the normal way of life after spending many years in war. Among the provisions of the GI Bill of 1944 was a 30 years low-interest mortgage, Veteran Administration insured mortgage that enabled most of the veterans and their families to refinance their homes; as well as increase the uptake of new homes. With these favorable terms, home ownership rate increased by about 18% from 1940 to 1960 when it reached the 61.9% mark.
Comparison with other countries
Compared to other developed economies, the US homeownership is not an extreme case and it actually looks much better than some countries. Some poorer countries relative to the US have higher home ownership rates while some rich countries have lesser rates. In Germany for example, home ownership stands at about 42%; with other countries such as Switzerland having lesser rates compared to Germany.
On the other hand, in countries like Bulgarian and Lithuania home ownership rate tends towards 100% most of the time. For some of the former Soviet Republic states, their home ownership rates tend to be high since after the end of communism, they handed over their public houses to the residents.
Causes for low homeownership rates
Different reasons have led to the decline in the home ownership rates in the United States since the peak of June 204 when the rate stood at 69.2%. Ever since, the general trend has been a downward sloping curve with few disruptions upwards from time to time.
Currently, economist argue that the low home ownership rates are caused by too much money chasing few real estate properties listings; hence propelling the housing prices to unaffordable levels. With improving job markets and an increase in income levels, many first time buyers are facing a big hurdle chasing after fewer houses in the market. The low mortgage regime also increases liquidity in the market and property developers are therefore compelled to raise their prices since their supply of housing is limited. With the high housing prices, most people then prefer to rent than buy; even though the rents are also increasing year-on-year.
Besides the prices, other reasons why the house ownership rates are going down is the fact that there is a change in lifestyles among the young generation moving out of colleges today. Having grown during the 2008 financial crisis and experiencing the pain most of their parents went through to repay their mortgages, the millennials are reluctant to own a home so fast after their college education and getting their first jobs. Most of them prefer living with their parents longer before moving out and even when they move out, they prefer to rent houses. This gives them the peace of mind away from repaying mortgages and it also them to be mobile and move about during their early days in their careers.
In a summary, the decline in home ownership in the US should not be a cause to worry since generally the economy is experiencing growth in income levels and living standards. The cause for lesser home ownership is majorly due to lifestyle factors and that should not be a cause for alarm.