It's no surprise that, for many, the housing crisis took the shine off homeownership. However, the extent of the tarnishing was greater than you might have expected. With mortgage rates still low and lenders making it easier to get approved for home loans, can we expect Americans to warm once more to the joys of owning their own homes?
Homeownership and the American Dream
Back in April 2013, the MacArthur Foundation published the results of a study it had commissioned into consumer attitudes to homeownership. Although 70 percent of those survey respondents who were currently renting said they still aspired to own their own homes, there were other findings that suggested some real changes in how people view housing:
Fifty-seven percent thought owning a home had become less appealing, while 54 percent thought renting had become more so.
Forty-five percent of people who currently owned their homes could envision themselves renting at some point in the future.
More than 60 percent of all respondents across the political spectrum believe government policy should be re-engineered to focus equally on renters and homeowners. Currently, housing policies are geared to encourage homeownership.
Peter D. Hart of Hart Research Associates, the company that conducted the study for the MacArthur Foundation, saw a fundamental shift in attitudes, remarking in a statement:
America is going through a transformational period in which the old forms and systems are changing, and the unconventional is becoming more conventional and even fashionable. A prime example of this can be seen through changing perspectives on housing. While the desire to own a home remains a bedrock principle in American life, this survey demonstrates that the American public’s views about housing are changing...
Time to Dream Again?
Is Mr. Hart right about this being a "transformational" moment in housing history? Of course, people aren't going to forget in a hurry how quickly old myths about homeownership crumbled with the credit crunch. Back in April, John C. Williams, president of the Federal Reserve Bank of San Francisco recalled to journalists at the Los Angeles Times the old, near-universal belief that home prices (and thus the net worth of those who own them) move only one way, namely upwards. He went on: "Then the escalator broke."
However, those 70 percent of renters who in the MacArthur study continue to aspire to own their own homes demonstrate an enduring commitment to the dream. And, when Fannie Mae asked slightly different questions in a December 2010 survey (during one of the worse periods for the housing market), it found the homeownership aspiration remaining strong in the long term: it was respondents' short-term goals that had been adjusted, and then only as a result of financial constraints.
Now, at last, there are signs those financial constraints are easing.
Mortgage Approvals Getting Easier
Perhaps the single biggest barrier to buying a home is getting approved for a mortgage. In recent years, lenders have demanded sky-high credit scores and substantial down payments, while restricting the types of loans they were prepared to offer.
Since March 31, 2012, the Mortgage Bankers Association (MBA) has been tracking mortgage underwriting standards, and it set its index at 100 on that date. In June 2013, the index reached 109.8, up from 108.9 the month before. Given that the higher the number, the easier it is to get approved, it's encouraging news.
That easing looks set to continue. On July 9, 2013, FICO, the company whose credit-scoring systems are used in most lending decisions, published its latest survey of risk managers in American banks, and it found that these professionals expect the supply of consumer credit to match demand for it during the second half of 2013 Dr. Andrew Jennings, chief analytics officer at FICO, seemed excited by the news:
This is the first time since we initiated the survey in 2010 that expectations for the growth of credit demand did not exceed expectations for the growth of credit supply. This shows the strength of the U.S. economic recovery...
Housing Affordability Still High
As more and more people find themselves able to buy a home, their attention will likely turn to whether or not they can afford to do so. Three key factors affect such a judgment:
- Home prices
- Mortgage rates
- Family income
The National Association of Realtors tracks national averages for all those three, and calculates from them a Housing Affordability Index (HAI). The truth is, housing affordability was at its best in January 2013, and the trend has been going the wrong way since, mostly as a result of rising mortgage rates and home prices.
Nevertheless, by historical standards, we're still in a period of exceptionally affordable housing, although the May HAI figures suggest the position is deteriorating fast. Those wanting to buy may wish to act quickly.
Will a combination of easier lending policies and excellent housing affordability restore homeownership's central role within the American dream? Only time will tell. But if today's exceptional conditions don't do the trick, it's hard to think what else -- except the healing effect of time -- will.