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Another thing to consider is that many buyers today aren't willing to buy the homes that actually match their budget. A 1200 square foot starter home with one bathroom and linoleum floors and FORMICA countertops? HELL NO.
Interest rates are at record lows. There are tons of houses out there, and yet people keep buying and building brand new ones.
Tastes change over time; that starter home with 1BA and FORMICA countertops is today considered functionally obsolete by homebuyers.
On the other hand, renters have much less money than homebuyers, and consequently, are much less picky about the homes they occupy.
Pretty much any dwelling that meets code, no matter how unappealing or functionally obsolete it may be, can be profitably rented out.
Homebuyers are a lot like those picky moms on television who insist on a specific brand of peanut butter.
So with home ownership around 65% in America, 35% of the US population doesn't own a home.
According to the article, half of them can't afford it, or around 17% of the US population.
Is that really a big deal? We're always going to have some on the lower income rungs. Always. Unless the pace is rapidly accelerating (ie it was 5% two years ago, which it wasn't) there isn't really a cause for concern IMO.
Yes it's a big deal because not being able to buy a home increases wealth inequality, which is much greater than income inequality. It also has intergenerational consequences, as in parents who never own a home obviously are unable to leave homes to their children and the cycle repeats, i.e. if your parents did not own a home, probably you won't own a home either.
'Buying' a home with a 30 year mortgage and government induced low interest rates is just another way of saying you cannot really afford the house unless you have 30 years to pay it off and the government manipulates interest rates to a point where they are low enough to make the purchase possible.
Where I live in Denver metro area, median home prices is $320k. I don't think I'll ever own a home with what they're building out here. Everything is priced high, they only build luxury homes and only upper middle class people can afford them. Can't wait to move out of this state.
'Buying' a home with a 30 year mortgage and government induced low interest rates is just another way of saying you cannot really afford the house unless you have 30 years to pay it off and the government manipulates interest rates to a point where they are low enough to make the purchase possible.
And the alternative is what? Rent will never be paid off in a million years.
A big piece of the equation is qualifying for a mortgage. It's not just credit rates that affect your ability to obtain a loan. The rebate quite a few regulations that hinder banks from bad lending practices.
Over 4 million people foreclosed between 2008 and 2013. There are stiff requirements on most of them today in order to qualify.
40% of US workers are contingent workers. These folks also must meet a number of requirements to qualify. Stellar credit score, work history, larger down payment.
The new lending laws make it more difficult to borrow even in the best of situations.
You hit the nail on the head. To add an anecdote, my sister for years has wanted a home. The junky place she was renting approximated a loan payment, despite the literal holes in the side of the walls and almost literal use by the owners as a junkyard in the back.
My sister is poor, and works at a grocery store where she's been for almost 10 years. She has good credit, but doesn't make much money. The D to I ratio would never allow her to borrow. Her husband makes slightly more, but has bad credit from his divorce. They've stayed there as they kept hoping to buy a home.
I'm not poor, I don't think I'm rich as I'm in a high COLA, but for this exercise I would be. My credit is fine. My income diversified. I sell my labor by consulting for companies, generally in intervals of less than 1 year. At any rate, I had some extra cash, so I decided to help them out. I figured we buy, I put down the downpayment, we both own the home, they pay the payments and when they're done, they can pay me. Upon final payment to me, I quit my claim to the deed and the home is theres. (Done up slightly more advanced so the IRS doesn't give me a hard time about gifts.)
About 5 weeks before closing, I wrapped up my assignment. They were quite happy with my work, and I was happy to have the holidays off with my early finish...we even split the remainder of the PO for coming in under budget. I signed up with another project at another company that was starting in January. Now, I'd been upfront with the bank that I was a consultant, and so I would do this frequently, but they went crazy that I'd first "lost my job" and later "switched jobs." even after verifying my hire at the new place for even more money.
Less than a week before close, with a holiday in between, the douchebags actually called my agent and told her to postpone the close, which would have put us outside of contract. They didn't even call me first. We could have lost the home. I already had a flight and hotel booked in part because they wanted me there for the close....not to mention I charge by the hour, so this was an expensive little trip...especially for nothing.
So when I got an e-mail forwarded to all that we were done, after being told to look at my e-mail by a completely distraught little sister who thought she'd just had lost her home at the last minute, I did the only thing possible. I gathered what cash I had, grabbed a couple interest free cc advances, and responded to that e-mail letting that same group that we were closing regardless, and that bank could go pound sand while it practices communication.
And my sister got her house.
But, the bank underwriting is definitely harder now than it was in 2004, 2010 or 2012.
Up here in the far frozen North, when banks foreclose on a home, they often let the residents stay there as long as they keep the place heated and pay the taxes. The bank owns the home, but the neighbors don't know that. The bank has the property down as a "performing asset". Psst, it s not a performing asset. The resident who gave the bank a 30 year mortgage has already paid double what he paid for the home in cash flow.
Often times the resident is still paying 6 3/4% on his debt because he doesn't know any better. Can you say housing collapse? A town in Maine recently sold 16 homes for $48,000. That is not each. That is for all sixteen homes or $3,000 per home.
There are pockets of prosperity in our country, but there are far more absolute sink holes of sudden poverty that far outnumber those pockets of prosperity. We have 95,000.000 adults between age 18 and 65 not working in our country. They are not contributing much to our economy. For those suffering from innumeracy, that is nearly three times the entire population of Canada, NOT WORKING!
Apologists will point out that some are stay at home moms, home schooling their kids. There are also third generation welfare people. The people who vote for a living outnumber those who work for a living. To call up the famous John Belushi quote, "Game over, Man!"
Tick, tick, tick.
It is 2016. Do you know where your IRA is tonight?
Tastes change over time; that starter home with 1BA and FORMICA countertops is today considered functionally obsolete by homebuyers.
On the other hand, renters have much less money than homebuyers, and consequently, are much less picky about the homes they occupy.
Pretty much any dwelling that meets code, no matter how unappealing or functionally obsolete it may be, can be profitably rented out.
Homebuyers are a lot like those picky moms on television who insist on a specific brand of peanut butter.
Quote:
Originally Posted by freemkt
Yes it's a big deal because not being able to buy a home increases wealth inequality, which is much greater than income inequality. It also has intergenerational consequences, as in parents who never own a home obviously are unable to leave homes to their children and the cycle repeats, i.e. if your parents did not own a home, probably you won't own a home either.
Sigh....
I will say, yet again, that in some areas this is true, and in others it is not. You have to run the numbers to see if owning comes out ahead of renting and investing in equities.
And before you retort that renters have no extra income to invest, my response is that this is not due to housing but due to their job, and is therefore 100.000% irrelevant to the claim that renting is keeping them poor.
Tastes change over time; that starter home with 1BA and FORMICA countertops is today considered functionally obsolete by homebuyers.
On the other hand, renters have much less money than homebuyers, and consequently, are much less picky about the homes they occupy.
Pretty much any dwelling that meets code, no matter how unappealing or functionally obsolete it may be, can be profitably rented out.
Homebuyers are a lot like those picky moms on television who insist on a specific brand of peanut butter.
I know the reasons, but formica counter tops are NOT "functionally obsolete." 1 bathroom, small closets border on "functionally obsolete" even though they're quite functional in and of themselves. but just because there's a white 1990s tile kitchen floor, or formica counter tops, or the floor plan isn't "open" - no, those elements don't meet the criteria for "functionally obsolete" and it is ridiculous for people to get so hung up on those elements that they're willing to go another $100k in debt just to get $3000 worth of cosmetic elements.
I agree with you about the silliness of the "criteria" for so many home buyers today.
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