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Rebecca Bush began her house search in January 2020.
“I thought maybe I’d find the perfect house in the next two months, and it would line up with the end of my lease,” the 27-year-old said. “Obviously we all know what happened in March.”
Coronavirus. The housing market has plunged into chaos following the pandemic. Home values increased nearly 20% in the United States between September 2020 and September 2021, according to Real Estate Witch. People were on a home buying spree despite the skyrocketing costs. He hasn’t left many homes on the market, and the low supply of homes continues to be a problem in 2023 despite the slow decline in prices.
Then came inflation and the Federal Reserve’s attempt to fight it, pushing some mortgage interest rates above 7%.
Between rising interest rates and competing with all cash purchases, Bush was in a bind when bidding on properties in her Tennessee home.
“Every time I’ve been beaten up by someone who looks like they’re from out of town, the house ends up costing a lot more than it says – 50, 60,000,000 more,” she says. “And usually cash…things that I just can’t compete with as a first-time home buyer.”
A tight domestic market and high interest rates have left would-be buyers like Bush feeling locked in — at least for now. But owning a home remains for many the cornerstone of the American dream and a vital way to build wealth. What happens when you can’t buy one?
The suburbs opened up after the war
All the money Bush has saved for a future home is just in his bank account. She thinks now, if she’s not going to buy a house anytime soon, what should she do with it?
“I just wonder if I need to find a different place to build wealth,” she says. “Isn’t it in a house?”
“Home ownership was a central way of creating wealth, I would say, certainly throughout the post-war period; in the aftermath of World War II when the suburbs opened up,” says Chris Herbert, managing director of the Joint Center for Housing Studies at Harvard University.
Since the war, home ownership has been part of the “American dream” for many people in the United States, like Moira Rogers.
Rogers is 50 years old and works as a real estate appraiser, just like her father did before her.
“I love real estate appraisal and I love the American dream of home ownership,” she says.
Rogers is a single mother of four children, three of whom are her sister’s – she helps take care of them. Rogers was looking for a three or four bedroom home with a yard in California. But with more than 30 years of experience in the appraisal industry, she felt the housing market would remain uncertain.
“It was really hard to remember because this American dream and the idea of your kids running around their room, it’s really an emotional thing,” Rogers says. “I had to take it back to the fundamental roots, which is if the numbers don’t make sense, they don’t work.”
Rogers moved his family to Alaska, where his sister’s children were born, hoping it would be more affordable than California. That wasn’t the case, and her family now lives in a 600-square-foot, one-bedroom condo she bought for less than $100,000.
“A closet turned into beautiful bunk beds that look like they came out of a children’s book, for the two little ones, four and six year olds,” says Rogers. “So every time they go to bed at night, they feel like they’re climbing into their own little fort in a way.”
The one bedroom, which the 12 and 13 year olds share, has just enough space to be able to be separated so that they each have their own private space. As for Rogers, she sleeps on a sofa bed in the living room.
She says maybe when the market is a bit more stable, her family can move to a bigger house. In the meantime, they’re spending more money on travel and experiences rather than a huge mortgage payment. Rogers knows his family’s home may be unconventional.
“But it’s my little piece of the pie and the American dream,” she says. “And it’s a nice, nice slice, that’s for sure.”
It’s also a slice that doubles as an investment, which helps Rogers and his family build wealth.
Tenants have other options for building wealth
Chris Herbrt says the difference in wealth between homeowners and renters is “substantial”. On the one hand, owners often have higher incomes and therefore have the opportunity to put more money into their savings for other investments.
“The simple math of saying you take out a mortgage and pay it off over time means you have this aspect of forced savings over time,” Herbert says. “So not only does your house go up in value, but you pay off that debt over time. So you combine those two things and home ownership has been a great way to save and get a financial return. .”
Herbert says there are ways for renters to build wealth outside of home ownership, and he cites stocks and bonds as an example. In some cases, it can be a better investment than housing, he says.
“Tenants can do well if they are able to invest in these financial instruments. The rate of return on stocks and long-term bonds has certainly been higher than the rate of return on home ownership,” he says.
Still, Herbert is optimistic that the housing market will improve in 2023 for those who want to go that route.
“We’re probably out of the darkest days now. Interest rates are expected to come down over the next two years,” he says. “The other reason to be optimistic, I would say, is that from a political point of view, there is a lot of attention given to this issue at the moment.
Herbert says policymakers and leaders in the housing industry — from lenders and realtors to builders — see good reasons why homeownership opportunities should be expanded.
“[They] are looking for ways to do that, ways to offer new forms of credit and other forms of support to make home ownership accessible to people,” he says.
Rebecca Bush, who has put her house hunting on hold, still hopes to become a homeowner one day. She grew up on a 60-acre farm, so she always imagined that one day she would have a place of her own big enough to house people, and maybe have a few farm animals of her own.
“I still have this dream that maybe I can buy a house,” she says. “But right now I’m trying to be open to the idea that maybe there’s something else out there for me.”