Why is home ownership declining? There’s one big reason
It’s getting harder and harder to grab a piece of the American Dream.
Newly released figures from ApartmentList.com, an online rental marketplace, show that while home prices have recovered and foreclosures rates have fallen since the Great Recession. homeownership rates have eroded.
HOMEOWNERSHIP RATES DOWN IN MOST METROPOLITAN AREAS
In a report released today, Apartment List analyzed the change in homeownership rates across the United States from 2007 through 2016, and rates fell in 57 of the 70 metropolitan areas that were studied.
Some of the biggest drops occurred in Orlando (-14.2 percent); Jacksonville, Florida (-11.3 percent); and New Orleans (-6.5 percent). But Southern California also saw declines.
LOS ANGELES REGION, RIVERSIDE SEE DECLINES
In 2007, an average of 52.3 percent of residents in the greater Los Angeles area owned homes. That percentage has since fallen to 47.8 percent. Riverside saw a similar decline, dropping from 66.6 percent in 2007 to 62.5 percent in 2016.
San Diego posted an even bigger decline. Its homeownership rate fell from 59.6 percent in 2007 to 51.5 percent this year.
On a bigger scale, figures from the Census Bureau show that last year’s U.S. homeownership rate of 63.7 percent was the lowest since before 1985.
DECLINE TIED TO AFTER EFFECTS OF THE GREAT RECESSION
Economist Robert Kleinhenz, executive director of research for Beacon Economics in Los Angeles, noted several factors that have prevented Southern Californians from owning homes. Much of the downturn, he said, can be tied to the Great Recession.
“Many people were in foreclosure and it took time for their credit to heal,” Kleinhenz said. “Others lost their jobs or their homes, so that makes for a slow recovery. The supply of new homes is also well below average and lending standards are still tight.”
Mel Wilson, broker and owner of Mel Wilson & Associates Realtors in Northridge, said buyers who make offers on homes listed below the median price for a neighborhood are having a tough time of it because those listings typically attract multiple offers, so they get shut out.
HOUSING INVENTORIES ARE DOWN
“Inventory is so tight,” he said. “In a normal market, you’d have an inventory of about six months, but today we have about one to one and a half months.”
And banks are partial to borrowers with higher FICO scores. Those are the credit scores most lenders use to determine your credit risk and the interest rate you’ll be charged. Every consumer has three FICO scores, one for each of the three credit bureaus — Experian, TransUnion and Equifax. Each score is based on information the credit bureau keeps on file about a specific consumer.http://www.pasadenastarnews.com/business/20160818/why-is-home-ownership-declining-theres-one-big-reason#.V8dIqMtHDMk.email
“You have to have a FICO score of 650 or above to purchase a home,” Wilson said. “And they have to verify everything, including the source of your funds for the down payment. And they’ll want to go back as far as three years to substantiate where your income is coming from.”
Kleinhenz said credit is still hard to get for many would-be homeowners.
“We’ve gotten here by enabling households that couldn’t afford homes to get mortgage loans,” he said. “The homeownership rate in California peaked at 60.2 percent in 2006, but that should not be our target moving forward because we achieved that under circumstances where people shouldn’t have gotten loans.”
A more realistic number, he said, would be in the mid-to-high 50 percent range. Kleinhenz also noted that declining rates of homeownership have put pressure on the rental market for apartments.
“We have historically been slow to add multi-family units here in Los Angeles and more generally in Southern California,” he said. “It makes for a very challenging time right now for someone who is trying to find a place to live — whether it’s renting or owning a home.”
Wilson said apartment rents are high in his area.
“They’ve gone up substantially over the last couple of years,” he said. “It’s hard to find a one-bedroom unit in the San Fernando Valley for less than $1,400 a month.”
Recent figures from price tracker CoreLogic show home prices are high as well. Southern California’s median price for June was $464,000, up 5 percent from $442,000 a year earlier.
The Apartment List report also shows that the median monthly cost to rent an apartment in the U.S. rose 3.7 percent between 2007 and 2014, while median owner costs for people with homes fell 13 percent.
BUILDERS FACING CHALLENGES
Wilson said California is about 165,000 units short of the number of homes that are needed to meet the current demand, and builders are facing challenges in getting more homes built.
“It takes two to three years from the time you acquire land to the time when you have someone moving into a home,” he said. “And there’s a lot of ‘not in my backyard’ going on when they go through the permitting and entitlement process. People don’t want more congestion and development in their region.”
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