There’s plenty of talk in economic and political circles about the immediate future of the battered but reviving U.S. housing market. But whether the market is up or down in this or that locale, a trend we ignore at our national peril is the rapidly passing opportunity for first-time homeownership for millions of Americans effectively locked out by tight credit, extreme terms, and competition from cash-flush investors. Anne Kim calls attention to this issue at Ten Miles Square:
First-time homebuyers accounted for just 28 percent of home sales in May, according to the National Association of Realtors – down from 34 percent in May 2012 and a historical average of about 40 percent. Moreover, says the Harvard’s Joint Center for Housing Studies in a new report, the homeownership rate among 25 to 54 year olds is at its lowest since 1976.
If these trends continue, the absence of first-time buyers could pose a potentially serious problem – not just for the housing market in the long run but for a generation of young Americans who are losing a chance to stockpile wealth.
Now you can make the argument that homeownership is overrated in our society; other modern economies get by with significantly lower rates, and subsidies for owning a home (preeminently the mortgage interest deduction) cost taxpayers a fortune while distorting capital allocations and land use in ways that we can barely grasp. But overreacting to a housing bubble by radically reducing first-time homeownership, while leaving the old subsidies in place, is no way to correct the problem.
There’s an important political element to this situation as well. A big part of the Tea Party Movement arose from the perception by older white folk that the economy was being ruined by loose credit terms for home purchases by people (you know, those people) who had no business owning homes in the first place. The idea that such “losers” might be “bailed out” by taxpayers was the immediate subject of Santelli’s Rant, the CNBC broadcast that started the Tea Party Movement in the first place.
So there’s been a mass political constituency for tight mortgage credit and high cash requirements unlike anything we’ve seen before. And the growing generational disparity in home-owning opportunities is also reinforcing a generation gap in political attitudes between striving young folk with limited job prospects, straightened incomes and few wealth-building options, and many comfortable old folk who think of “creditworthiness” as identical to personal virtue and look down on renters as rootless drifters with no stake in civic life (you know, the kind of people who should be discouraged to vote).
We all know about these generational undercurrents (aggravated, as always, by racial and ethnic resentments), but you don’t hear much about them in dry discussions of housing policy. That should change.
As Anne Kim says, the stakes are hard to overstate:
Overall, residential real estate accounted for $17.7 trillion in total wealth in 2012, or more than the nation’s gross domestic product. Aside from the inequity of locking out an entire generation from sharing in that wealth, the loss of first-time buyers could have broader economic effects.
None of those effects will be good.