Young Americans struggle to buy their own homes

Lack of good jobs, tighter credit, rise in loans keep dream out of reach
By Melissa Sim, US Correspondent In Washington, The Straits Times, 2 Jun 2014

TWO months ago, the Golems started looking for their first home in Washington, DC, but their search took them from downtown to beyond the city boundaries in Virginia. Still, they found nothing that they could afford.

"We were looking in Georgetown, and as we did, we realised it was just not affordable for what we make," says Mrs Heidi Golem, 28, who is a designer. Her husband Jon, also 28, is the director of engineering in a hotel.

"We were kind of crushed," says Mrs Golem.

The couple now rent a one-bedroom apartment in Crystal City, just outside Washington, for US$1,900 (S$2,380) a month.

Their experience is not unique. As the United States' housing market starts to pick up, one group has definitely been left out: young buyers.

A decade ago, about 42 per cent of those under 35 owned their own homes in the US. Today, that percentage has fallen to about 36 per cent, and most experts expect the downward trend to continue.

The US situation mirrors trends from all over the world. In Singapore, the affordability of housing is one of the key concerns for young couples, while in England and Wales, recent studies show that the number of homes owned by people under 35 fell from 2.2 million to 1.4 million between 2001 and 2011.

"This may be the new normal," says professor of real estate and finance Susan Wachter, from The Wharton School at the University of Pennsylvania. "Owning real estate in the superstar cities of the world is not for the young."

While some view this as a natural economic trend, there are those who worry that it means social mobility is stagnating. Home ownership, they say, has been the principal method of wealth accumulation for generations.

For the most part, home ownership among young Americans has remained elusive for three main reasons - the lack of good jobs, tightening credit and the rise in student loans.

While the economy might be on the rebound, the fact remains that young Americans are finding it difficult to get jobs. The Great Recession caused the employment rate among young Americans aged 20 to 24 to slip to 61 per cent in 2011, from 72 per cent in 2000.

Adding to the problem is the fact that these young individuals have taken hefty student loans to pay for their college education. Some have chalked up US$100,000 in debt even before entering the workforce.

"Those (student) debts, and the tighter lending standards, are really going to result in slower attainment of home ownership," says professor emeritus of economics Donald Haurin from Ohio State University.

"Housing prices in the US are back to 2004 levels but wages have not kept up," adds Prof Wachter.

The inability to afford housing does not just result in a frustrated generation unable to attain the American dream. It also has economic consequences.

Home ownership has typically been a key driver of the US economy but due to "missing in action first-time home buyers", the housing sector is lagging and causing ripple effects throughout the economy, says Prof Wachter.

For example, it has caused slack in the construction industry, which means jobs in that sector are "increasing more slowly than would be the case if construction were at normal levels", she says.

The idea that a home could be a nest egg for retirement is also being turned on its head, says sociologist Katherine Newman.

"Unlike earlier generations, the process of accumulating savings through property is pushed way back," says Professor Newman, dean of arts and sciences at Johns Hopkins University. She adds that for many, a home acts as a savings account for one's retirement, but that is not the case for the current generation.

There are also social consequences, says Prof Newman, who has written a book about the "Accordion Family" - families composed of adult children living off their parents. She argues that all the economic challenges are "changing the social landscape of the American family".

Many young adults are set back in terms of being able to create an independent household and "it goes along with a basket of other changes - delayed marriage, delayed family formation - all these things are wrapped together", she says.

Perhaps one of the more pronounced consequences of homes becoming available to only one group in society is that it heightens the growing problem of inequality.

"Inequality has been surging - some people argue it's approaching (that of) the Roaring 20s and housing is part of that," says Prof Newman. "Those who have are able to accumulate more, and those who don't aren't even able to get into the game."

For young professionals like Mr and Mrs Golem, that dream of owning their first home will just have to wait.

"We want to own a home, but if we continue to stay here, I don't know how it would be possible," she says.

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