It is no secret that buying a home today is more difficult than it was 60 or even 20 years ago. In 2016, millennials only accounted for 32 percent of the homebuying market. These figures represent the lowest percentage of young adults to become homeowners since 1987. Furthermore, nearly two-third of renters say they cannot afford a home, and things do not look like they are about to get any better.
Unfortunately, a number of different factors are contributing to these difficulties, making it difficult to find a single answer for addressing the problem. Even worse, many experts believe the current housing situation can be traced back to post-WW II times, with the factors contributing to the difficulties within the housing market being well engrained within our system.
The Post-WW II Housing Boom
Just last year, the CoreLogic Case-Shiller National Home Price Index rose 6.3 percent. Not only is this rate twice the rate of income growth, but it is also three times the rate of inflation. During this same time period, the supply of starter homes fell by 17 percent.
In the past, government programs helped to address such issues within the market. The postwar boom of homeownership, for example, was deliberately engineered with the help of government policies. As a result, homeownership rates increased from roughly 40 percent at the end of the war to 60 percent shortly after. The establishment of the Federal Housing Authority and the Veterans Administration home loans programs are largely credited with helping to spur this boom.
The establishment of the FHA in the 1930s made it possible for lenders that had not previously been in the house business, such as insurance companies and banks, to start lending money. As such, it essentially created the mortgage market that we have today. Meanwhile, the VA program made it possible to focus on the millions of soldiers and sailors who were returning from the war. In the years following the war, veterans’ mortgages accounted for more than 40 percent of all home loans.
This pattern continued for decades following the war, with FHA and VA loans accounting for 51 percent of loans in 1950. These programs also accounted for between 30 and 51 percent of housing starts between 1951 and 1957.
Creating a Tight Market
While government incentives following the war did a wonderful job of encouraging people to make a home purchase, they did nothing to prevent housing costs from going up over time. Despite the fact that these programs are still in place to assist potential homeowners with obtaining a loan, those who are interested in making a home purchase are struggling with saving the money needed for a down payment. As such, for those who made it past the 2008 housing crisis, now is a great time to own home. For those who are interested in purchasing a home, however, the tighter mortgage loan regulations combined with rising housing costs has made it a difficult time to purchase a home.