Homeownership was once the primary driver for personal wealth in the United States. Widely acclaimed as the framework from which American Dreams began, many purchased homes without worry due to the presumed security elicited from a belief that the value of their asset would only grow with time.
Homeownership
We have all heard the stories and phrases that presented a house as the “best investment” that one could possibly obtain, given the tax advantages and long term benefits of appreciation. “Home prices will always go up with time” is another wildly popular statement that has been told to many of us throughout our lives, and, until recently, we would be insane to think or believe otherwise.
However, with the downturn of the economy in 2008 and subsequent housing market crisis, many have now began to think otherwise, as many homeowners struggled and paid their last dimes to purchase assets that, in turn, have only lost tremendous amounts of value over the past several years. The hands of these homeowners are now tied, whereas many of their homes were well overpriced when they were initially purchased and now only return negative equity that may decline even further with time. In many cases, this negative equity has been so drastic that thousands upon thousands simply decided to let their homes go into foreclosure and cut their losses before they became worse.
The current health of this housing sector provides insight into the direction of the overall US economy. Despite some gains since the crisis, recent data suggests that the housing market is still far from being out of the hole. In fact, recent data suggests that things are only getting worse as many more mortgages look to be headed further underwater.
This has prompted construction to slow to its lowest point in over a decade and shadow inventory only reveals additional challenges that will only further delay any sort of recovery. Currently the unofficial shadow inventory stands at roughly 1.8 million homes. When combined with the nearly 2 million homes listed as “severely underwater inventory” (homes where owners have lost 50% or more of their equity), the future outlook for the industry only gets worse. The impact of the former, when combined, could lead the National Association of Realtors’ 8.6 month official backlog to triple to more than two years.
The silver lining in this depressing scenario is that many more may be able to purchase homes at depressed prices. Perhaps they will now be able to obtain the American Dream of owning a home; yet, one can’t help but feel sorry for the millions of lives that the housing market has negatively effected.
Our America as we know it has changed due to the Great Recession. Only time will tell how much things will continue to change in the housing industry. Let’s just hope that the change somehow turns for the better, and not for worse.
Modern Intelligentsia 