The American dream of home ownership is fading

The American dream of owning a home has become a nightmare for many people and could yet tear our country apart.

The US real estate market is descending into chaos, and more is to come. The lack of availability of new homes and the decline in the number of people selling existing homes has created a dangerous shortage nationwide, leading to an unprecedented rise in property values.

Jim Martin for the camera

The United States is missing 5.24 million homes, an increase of 1.4 million from the gap of 3.4 million in 2019, according to new research from Realtor.com.

Owning your own home is undeniably part of the American dream. But surveys show that many millennials (26-41) and older Gen Zers (up to 25) think they own a home now or never will. . They believed that even when mortgages were at a historically low interest rate of less than 3%. Today, it exceeds 5%. Between 1949 and 2018, mortgage debt as a percentage of GDP rose from 15% to 80%.

Here’s a scary question: how many baby boomers could afford the house they live in today?

Say goodbye to the historic practice of future homeowners saving specific amounts of money for a down payment. Unfortunately, house prices have risen faster than ever, far outpacing real wage increases and destroying this strategy.

Many homeowners have made more money from their home’s appreciation over the past two years than their personal income.

Nationally, home prices have risen more than 30% over the past two years. In 2021, home values ​​jumped more than 20% across most of Colorado. The fastest appreciations occurred in Pueblo, 24%; Colorado Springs, 22% and Grand Junction, 22%, as people searched for housing price alternatives in the Denver metro area.

Median house prices in our region soared again in April, reaching record highs. According to Real Estate Services LLC (IRES), Boulder’s median resale price for single-detached homes was $1.675 million in April, down from $1.5 million in April 2021 and $1.4 million in March 2022.

In a particularly cruel way, the value of many Boulder County homes rose due to the tragic loss of supply following the Marshall Fire in late December, which destroyed approximately 1,000 homes. The removal of all these homes from the market has driven prices up dramatically in the last four months alone – by 20% to 30% in many cases.

How did we come here?

The nation had a lack of commitment in the 1990s and 2000s to meet our future housing demands.

The Great Recession of 2008 caused banks to stop lending money to builders/developers. The latter were unwilling or unable to borrow money to develop land, especially single-family land. The entire financial system has been frozen in place, it seems.

The coronavirus pandemic, labor issues and supply chain failures have further reduced housing supply, driving up costs and delaying the construction process.

The housing crisis in the United States is approaching a dire state. Even before COVID-19 hit, we were already short of about 7 million affordable homes. The term “affordable homes” used to refer to housing for low-income families. But now the definition needs to be broadened to include middle-income housing.

Over the past two years, Americans who own their own homes have gained more than $6 trillion in single-family real estate wealth — and that’s excluding rental landlords.

These homeowners earned this money by doing nothing but owning their own home. They didn’t work for it; they didn’t have to pick themselves up by their boots.

Never before have so many Americans gained so much equity in their homes in such a short time, and this is inseparable from the housing affordability crisis.

Only 65% ​​of American households own their homes and have been able to share this windfall.

In the past, home ownership has long been accepted as a major component of our ability to accumulate wealth, especially for retirement. Many homeowners have tapped into the equity in their homes to pay for their children’s education, health care or family emergencies. But if they are forced to rent, there is no real estate capital to exploit.

Benjamin Keys, a professor at the Wharton School of Business, fears that all this real estate wealth will only reinforce to families the fact that they have few alternatives to build wealth other than home ownership. .

Surveys indicate that the vast majority of Americans still yearn to live in single-family homes, especially those leaving cities for suburban or remote living due to crime, poor schools and extreme congestion. What happens when these people can no longer work remotely and have to return to their offices to work? So much for living the dream of working from home and spending more time in your mountain cabin or at the beach.

Americans have seen their net worth increase dramatically, either through stock market appreciation, real estate appreciation, or both. But many Americans did not participate in any of these practices, which deepened the inequality between rich and poor.

Will the housing market ever return to affordability? Can we have our own version of the American dream by giving them the same opportunities we had?

The housing crisis in the United States is a disaster. Let’s treat it as such.

Jim Martin can be reached at [email protected]

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