CNBC asked that question in a recent article. Here's an excerpt.
As finances and bad credit prevents homeownership for many, a single-family home may soon be considered a luxury item.
Almost half of those people who don't own a home said their financial situation is standing in the way, according to a report by Bankrate.com released Tuesday. Additionally, 29 percent said they can't afford a down payment and 16 percent said their credit isn't good enough to qualify for a mortgage.
. . .
These days, first-time homebuyers, who are primarily in their 30s, are spending a bigger chunk of their incomes to buy their first house — coughing up about 2.6 times their annual pay; in the 1970s, first-time homebuyers purchased homes that cost only about 1.7 times their yearly salary, according to Zillow.
Tighter lending standards and hefty down payments have further deterred some buyers.
. . .
As a result, rental occupancy is at the highest level in 30 years and homeownership, which peaked in 2005, is at the lowest level in half a century.
Millennials, more than those in other generations, were most likely to say they don't want to own a home right now. Because of their hefty financial obligations, such as student debt, they are also postponing getting married and starting a family, according to a separate survey by TD Ameritrade, which polled 1,000 adults age 18 and older.
Forty-eight percent of those polled said their financial constraints prompted them to delay buying a house, while 38 percent said they put off having children and 29 percent said they postponed getting married.
There's more at the link. It's very worthwhile reading.
I think there are several contributory elements that CNBC hasn't factored into its analysis. They include (but are not limited to):
- The dearth of well-paying jobs. Most of the new jobs created since the last recession of 2008/09 have been in the service industry, at hourly rates well below what many were previously earning. I've read of people who used to earn the equivalent of $50-$100 per hour who are now making $10-$20 per hour in relatively menial jobs, because they simply can't find employment in their old industries and occupations at their old income levels. If they don't have the income, they can't afford the homes they'd previously have bought.
- The growth of other demands on income. Medical insurance rates are just plain ruinous at present (due, of course, to the ridiculously high prices of US medical care compared to other nations). Insurance for a couple is likely to cost at least $800-$1,000 per month for anything worthwhile, if they aren't eligible for Obamacare subsidies. Student loans have also exploded in size and number, with many graduates leaving college or university carrying tens of thousands of dollars in debt. With those repayments hanging over their earning ability, they often don't have sufficient disposable income to qualify for a mortgage.
- The high prices of houses and apartments in most markets. This is largely due to the surge in asset prices following multiple rounds of quantitative easing - all that cash had to find a home, and it found it in (among other things) property. Investors have bought most of the forced-sale homes that came on the market as a result of the previous recession (click on these five links for more information), and they're not prepared to sell them at less than a very substantial profit. Instead, they're renting them out, often at rates that appear extortionate compared to figures from only a few years previously. This gives them a much higher, much safer return on their investment than they could get from the (currently dangerously unstable) stock and bond markets. (As an example of how high rentals have become, Miss D. and I are paying approximately the same each month to own our new home, including mortgage principal and interest, insurance, rates and taxes, as we paid in Nashville to rent a duplex a little more than half as large and a lot less comfortable.)
- The increase in the tax burden on individuals. Thanks to Obamacare, tax rates went up this year by about 10%. Obamacare itself imposes tax penalties on individuals who have non-qualifying (or no) medical insurance policies. States and municipalities are increasing consumption taxes, fees and other levies to compensate for falling income levels, because they daren't cut services too far for fear that the electorate will vote those responsible out of office.
- Inflation is costing people more and more for the basic necessities of life. As we've discussed here before (most recently earlier this month), the real inflation rate affecting consumers in many US cities is probably a whole lot higher (by five to ten times) than the official government figure. Families simply don't have enough disposable income to assume a heavier debt burden, even if it's a mortgage on a lasting asset.
There's another factor that I can't quantify for the country as a whole, but I can see its impact in individuals and families I know. That's how they prioritize their financial needs. To give you an example: when Miss D. and I married six years ago, we decided to adopt a fairly simple lifestyle in order to live within our means. As part of that, we gave absolute priority to paying off our respective debts, and secondarily tried to build up an emergency reserve. After our debt load had been reduced as far as possible (with the exception of one consolidated long-term study loan at a very low interest rate), we didn't start spending a lot more; instead, we saved more, so as to have a year's expenditure in the bank in case of need. That's what enabled us to buy our new home when the opportunity arose. We were able to put down a full 20% deposit and take a 15-year loan, instead of having to look for sub-prime finance. We also made sure to buy a home we could afford, without over-extending ourselves. As a result, our home-buying experience was relatively pain-free in financial terms (at least, so far).
I see far too many individuals and couples who aren't doing that. Instead of being willing to live within their means and pay down existing debt, they continue to spend without any discipline. They cite social pressures ("keeping up with the Joneses", as it used to be called), or the need to live up to their positions at work, or whatever; but the fact remains that they're accumulating more and more and more debt. They'll never be out of debt unless they change their ways, but they're not willing to do that, because it would mean the end of 'instant gratification'. (Of course, business and commerce encourage the latter. Can't afford to buy a car? Why not lease one at a much lower monthly payment - and lease a better one than you could otherwise afford, while you're at it? The fact that you'll never actually own a vehicle that way is neither here nor there . . . just as long as you can pay the lease every month.)
I suggest that these and other factors have a lot to do with why a lot fewer people are buying houses, apartments and condos these days. If that's the case, it doesn't bode well for the economy as a whole, never mind the housing market. It's yet another harbinger of what's bearing down on us.