Picture it: A white picket fence, the dog in the backyard, sipping coffee on the porch.
Homeownership has been the symbol of the American Dream. But the Federal Reserve announced another hefty increase in interest rates Wednesday, surely driving up the cost of home mortgages again — an effort to bring down persistent inflation. With the cost of houses remaining stubbornly high and the price to borrow soaring, is that idyllic picture slipping away?
Our parents and grandparents bought houses with relative ease. The share of Americans owing a home in the U.S. averaged 65.3% yearly from 1965 until 2022. It reached an all time high of 69.2% in the second quarter of 2004 and a record low of 62.9% in the second quarter of 1965. Pretty steady, for a span of roughly 60 years.
With multiple hits in a row — a crunched housing supply in big cities, the pandemic, an economic downturn, soaring inflation, a likely recession — the Millennials and Generation Z must feel like owning a home is more out of reach than ever.
According to Harvard University’s annual State of the Nation’s Housing Report released in June, rising home prices exacerbated an already tight housing market. Rising interests add to the equation, pricing out 4 million renters.
“The income needed to qualify for a home has skyrocketed: The mortgage, property tax and insurance payments for a median-priced home of $340,700 cost $700 more per month in April 2022 than they did a year before,” the authors wrote. “And the annual income needed to qualify for such a home is $28,000 higher in April 2022 versus last year.”
The housing market is apparently showing some signs of slumping. It had to, since mortgage rates have nearly doubled. The 30-year fixed-rate mortgage was at 7.08% at the end of October, up from 3.85% in March, according to Freddie Mac.
Even if interest rates go back down in the spring, the price of houses could spike again, bringing back bidding wars.
For many people, owning a home is not just part of the American Dream, it’s practical: Everyone has to live somewhere, so why not make your biggest monthly cost an investment? Without that, many people are spending thousands of dollars without any long-term gain.
As a conservative, it’d be easy to place the blame for this squarely on the head of the Biden administration. While the president can do little about interest rates, policy changes could trim inflation and the price of gas. Still, the real economic shift began with the Trump administration, and the stimulus handouts he promised to help people get through the pandemic. Between the two, they pumped too much money into the economy did exactly what many economists predicted: Fueled the cycle of inflation, which made the housing market even pricier.
There are upsides to not owning a home: One doesn’t have to scrape together a 5% down payment, and then another 1-5% value of the home in savings in case the air conditioning goes out or the roof is damaged or a basement floods and the floor needs to be replaced.
A mortgage-free life can also mean more freedom. If you’re not house-poor, you can still enjoy some of the simpler pleasures in life that budget gurus scoff at like a regular Starbucks run, dining out, or fun weekend away with friends or family.
We might be heading into a recession, and there’s a lot of politicians who can be blamed for it. But it’s also just a regular part of our economic cycle. If fewer people can afford housing, they might have to put their efforts elsewhere for awhile.
Maybe, for now, the American dream looks like freedom to travel, a savings account, dining out or other “guilty” pleasures. The American economy may struggle for a bit but there are few places on earth one can work remotely, enjoy the finer things in life, save up for a house if you work hard enough, and enjoy the fruits of your labor.
It may not be that the American dream is dead but that it must be reimagined — at least for now.
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