Is the Earth moving under homeownership?

Castles in the Sand

As I’m reading that mortgage rates have topped 7% for the first time in 20 years, I can’t help wondering how all the events of the past two years will affect homeownership. As the affordability of purchasing a home deteriorates, will it take homeownership along with it?

I recently became aware of a book called “Crabgrass Frontier: The Suburbanization of the United States,” written by historian and Columbia University professor Kenneth Jackson in 1985. The book focuses on the history of single-family homeownership in the United States and goes all the way back prior to the Civil War. However, my interest and probably yours was what happened to American homeownership after World War II.

Although the book outlines the history of how the suburbs developed, it also explains the psychology of why people want to own their own home and the piece of ground under it. It’s all about the “American Dream” and how for generations, owning a home represented the fulfillment of that dream and the success that it symbolized. Immigrants who came through Ellis Island at the beginning of the 1900s couldn’t believe their children could actually own their own homes and appreciated how important that was to their lives.

The economics of owning a home for most would-be homeowners was less important than the desire to own a home, regardless of whether the future math made sense. Find the home you want in the area you want and find a way to get it without really considering its future worth. Fortunately, the future worth of real estate has consistently risen since the early 1950s when the suburbs outside of major cities grew and grew and grew.

All we have to do is look to the last couple of years when home values in the United States have risen 36% since 2020, which is twice as large as any other two-year increase on record. Even the real estate crash of 2007 hasn’t changed anyone’s minds about the value of homeownership. All the value that was lost has returned and most people and economists feel that what happened then was just a blip on the real estate radar, not a trend. There has consistently been a 60% homeownership rate since the early 1960s.

The COVID-19 epidemic has certainly changed where people live almost as much as the advent of affordable automobiles and highways did. It gave citizens the ability to live far from their job’s home offices and “commute” via their laptops, pushing up the value of homes in areas of the country no one ever considered moving to until retirement, like Florida. This has unfortunately widened the gap between the wealthy white-collar professionals and everyone else. That combined with the rise of inflation and mortgage rates has locked a lot of middle-class people out of the market.

Nevertheless, history predicts that what we’re living through now will not be long-term and homes will continue to appreciate. Eventually, new buyers will find a way into the market. Florida has been one of the major beneficiaries of this unusual real estate trend and, although our market is going through a slight correction, don’t bet on it collapsing.

Since the Federal Reserve just passed another rate hike at a recent meeting, we can anticipate mortgage rates to continue going up. As the Earth keeps moving under the real estate market, the average buyer just doesn’t know what to do, so many are doing nothing. It’s a sad state of affairs for the country, but hopefully one that will not stick around for long.