3 July 2018
The Dream of Homeownership
Homeownership became a symbol of the American Dream early in the 20th century. For the middle class, the dream was fulfilled in the 1950s and challenged in the early 1990s. But as a new century approaches, the dream has revived. Baby busters are moving into starter homes vacated by middle-aging boomers, who are looking for move. up homes with enough space for their growing families The American Dream of Homeownership is forever changing with the times, as is our great country, which is notable from 1950’s to the 1980’s and the present day.
Since the close of World War II,Americans have equated owning their shelter with achieving theAmerican Dream. Now, as the 20th century draws to a close, a newgeneration of American homebuyers are dreaming new dreams.Suburban homeownership in America first blossomed in the 1920s, asa byproduct of general prosperity, rising incomes, and the automobile.The foundations of middle-class suburbia were poured, and theAmerican Dream was established. But the stock-market crash of 1929and Great Depression of the 1930s shattered America’s dream.Economic havoc pummeled consumer incomes, and homeownershipretreated. America’s societal fabric seemed about to unravel.Then the New Deal came to the rescue, forging a broad social compact and promotinghomeownership as the ultimate reward of American citizenship. The dream was recertified andcollapse was avoided, but progress in homeownership rates was slow. During World War II, then gained potency. The aspirations of overseas GIs paralleled the yearnings of those remainingon the home front. A remarkably unified set of values about the future emerged, and suburbanhomeownership was at the core of those values.
The returning victors, and the nesting generation that they formed, wanted nothing more than asuburban home in Levittown. Despite the scorn of American intelligentsia, the Levitt Cape Cod or itsequivalent made sense to consumers. At 900 square feet, it was the package that married aspirationto economic reality.In the ensuing decades, America became a true nation of homeowners. Real incomes and livingstandards virtually doubled between the early 1950s and the early 1970s. The American dreamhouse soared past 1,600 square feet in size and included more amenities. Twocar attachedgarages became the norm. Consumer surveys confirmed that homeownership had become the mainsymbol of economic success and the major proof of providing the “good life” for one’s family.In the 1970s, recession and oil embargoes transformed ordinary homes into valuable financialinstruments. Americans saw their homes as investments, tax shelters, and, ultimately, speculations.This viewpoint peaked in the 1980s, particularly in coastal markets where a seemingly “recession-proof” bull market richly rewarded homeowners just for existing.
In the 1980s, Americans viewed housing as a guaranteed supersavings plan. Just put in a fewdollars, they believed, and appreciation and inflation will do the rest. A few years later, somehomeowners cashed in on the profits. They were able to trade up in the market, send the kids tocollege, and finance their retirement.
But in 1989, the unthinkable happened. In many markets, home prices plunged. Superhouses builtin lessthenupscale communities turned into white elephants. And across all market segments,many late 1980s purchasers found themselves with negative equity in their homes. Consumersfound that the leverage implicit in housing finance also worked in reverse. The doctrine built up over50 yearsthat housing always appreciatedwas challenged. And baby boomers, who had leddemographic trends all their lives, were forced to confront a new demographic reality. The housingpyramid beneath them began to shrink as the smaller babybust generation entered the market. Thetide of new buyers was receding, and the tradeup process began to melt down.Is the dream of homeownership dying?
In early 1992, Fannie Mae (the Federal National MortgageAssociation) sponsored a national survey to measure Americans’ attitudes about housing andhomeownership. It found that although 78 percent of respondents still believe that owning a home isa good investment, more than one in five do not. Similarly, while 77 percent of homeowners maintainthat their home would sell for more than they paid for it, nearly one in four disagrees. Only 53percent expect the prices of singlefamily homes in their area to be higher in three years. Notsurprisingly, homeowners in the recession-battered East Coast are least likely (42 percent) tobelieve that home prices will rise.
Even so, the Fannie Mae survey shows that the dream still lives. It suggests that homeownershipstill offers Americans a degree of financial and psychological security. Eighty percent of respondentsidentify the traditional singlfamily detached home with a yard as the ideal place to live. Perhapsmore significantly, the value of homeownership is felt most acutely by those who have not yetachieved it.Despite the bursting of the housingprice bubble and a more sober financial outlook, homeownershipretains its allure. Recent housing production stands as evidence that Americans are refusing to letgo of their dream.
In 1991, the worst production year since World War II, there were just over 1 million housing starts.Housing starts rebounded to 1.2 million units in 1992, still one-third below 1986 Fully 86 percent of new housing units built in 1992 were singlefamily homes, the highest share inhalf a century. But if single-family homes are the locomotive driving today’s housing industry,multifamily rental units are the caboose. They were battered by overbuilding in the 1980s, the 1986Tax Act, a conservative lending environment, and slackening demand from the smaller baby-bustgeneration.
Housing production is not the only thing on the upswing. A milestone of sorts was reached in 1989,when the average square footage of a new singlefamily home sold in the U.S. reached 2,000.Average new home size kept growing to 2,050 square feet in 1990 and 1991. This longterm trendhas been seldom interrupted, and then only for short periods of time.Nearly three-quarters of all houses completed in the 1970s were one-story ranch-style homes, buttheir market share dipped below 50 percent by 1990. Two-story dwellings have become the norm,while garages have become ubiquitous: a record 82 percent of newly completed houses in 1990 hadgarages, compared with 58 percent in 1970.
Twenty-nine percent of homes built in 1990 had four or more bedrooms, another record-setting level.Bathrooms have likewise expanded in number. In 1970, 52 percent of new homes had fewer than one-and-half full baths, while only 16 percent had more than two. The market shares werereversed by 1990: only 13 percent had one-and-a-half bathrooms or fewer, while 45 percent hadtwo-and-a-half or more.
In 1970, 66 percent of new homes did not have central air conditioning; by 1990, 75 percent did.Sixty-five percent of new homes had no fireplaces in 1970; by 1990, 66 percent had at least one.
Compared with their postWorld War II counterparts, new homes of the 1990s are deeply featherednests. Consumer expectations have embellished the traditional American Dream to such an extentthat the humble Levitt Cape would be considered by today’s homebuyers as mere “affordable”housing.
The reasons for housing’s current rebound are not surprising. What was once unthinkable–the 7.5percent mortgagehas become available. In late 1992 and early 1993, mortgage interest rates fell totheir lowest levels in 20 years. With prices either deflating, stagnant, or lagging behind inflation–depending on the geographic market-housing may become truly affordable again.
Housing is now attracting a large number of first-time baby-boom buyers who did not board thehomeownership train earlier because they could not afford to or because they had not settled downyet. Add in the baby bust, and the result is a robust single-family home recovery.
Not long ago, current homeowners were usually in a better position than renters to buy homes. Theycould sell their houses for a profit and move up. That wisdom did not always hold in the early 1990s.First-time buyers did not have the “baggage” of previous ownership–i.e., the burden of selling ahome before they could buy a new one. But today, the filtering-up process seems to be workingagain. The demand for entry-level housing has rejuvenated the trade-up market for older boomers.
The well-learned lesson of the early 1990s is this: move-ups can only occur if there is a market forstarter homes. Once this “catch-up” process is completed, baby busters could impede the trade-upprocess later in the decade.