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The Normalization Trend Continues

May 8, 2017


The Wall Street Journal ran an article titled “Rent or Buy? More Young People Are Choosing Homeownership” last week. The Journal tells us that the first quarter saw more new households buy a home than rent one. This phenomenon hasn’t occurred in a decade.  

We’re not surprised that young people are backing away from renting and embracing buying. Data from Fannie Mae and other sources have long shown that the vast majority of us prefer to own a home than to rent one. Most of us have a nesting instinct, and we can’t really nest in a home we don’t own. No matter how magnanimous  the landlord might be, he or she will never be magnanimous enough to let the renter fully his way. 

For the aforementioned reasons, we’ve never bought the narrative that the country is morphing into an agglomeration of mobile, transient renters. The single-family housing market has, and always will be, driven by owners who occupy their properties, and for good reason: A stable neighborhood of homes occupied by their owners contributes to higher levels of social cohesion, lower levels of crime, and lower levels of other socially undesirable behaviors.

This is no revelation on our part. A1942 paper, authored by sociologists Clifford Shaw and Henry McKay, suggests that residential instability leads to many social problems. Instability is marked by a neighborhood of renters continually coming and going. (We’ve always been somewhat skeptical of the business sustainability of the recent industrialized approach to single-family-home rentals.) 

We understand that rental properties serve a useful economic purpose, but we also understand that housing dominated by occupied owners serves an even greater purpose. The good news is more data show that more people are turning to what they really want — a home of their own that they own.

Recent data also show the trend in homeownership should continue to rise.

For one, the trend in mortgage purchase applications remains up. Purchase applications were up 5% week-over-week last week. The longer-term trend — year over year — is also up 5%. With the prime 30-year mortgage holding at a steady 4%-to-4.125% range across the county, more potential home buyers should consider elevating their situation to actual home buyers. 

And there should be more homes for home buyers to buy. Home builders continue to invest in what they do best. Bureau of Economic Analysis data show investment in single-family structures was $257 billion for the first quarter, up a stout 13.7% compared to the previous quarter. But at 1.4% of GDP, it’s still low compared with historical norms.  Single-family investment has averaged roughly 2% of GDP since 1959.   

Housing has come a long way since the 2008-2009 recession, and it still has a long way to go. Good for us.

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