While the goal of buying a house used to be a huge part of the American dream, according to the National Association of Realtors, home purchases have decreased by more than 10% since last year, the largest decline in seven years. Typically, this kind of data correlates with a struggling economy. However, the current state of the economy -- thriving -- reflects quite the opposite. So, what is the reason for the sudden decline?
Some factors for the loss in purchases can be clearly measured, while others are more vague and make housing market professionals both intrigued and concerned. The more tangible insight comes from the increasing interest rates, which have jumped from 2016's average of 3% to just under 5% at its recent highest. In addition to rising interest rates, the median house cost -- which Business Insider quotes at $253,600 -- is quite high for the average family. Keep in mind that this figure includes houses that may need quite a bit of work done after purchase.
Some experts suggest that part of the reason for the sudden decline in home purchases is that millennials aren't as quick to the home buying game as prior generations were. Millennials have more college loan debt and work entrepreneurial jobs from home.
In general, millennials are waiting longer to get married and reproduce. So they don't feel as much of a rush to find forever homes. CNBC reported that only 37% of millennials ages 25 to 34 are homeowners.
Also, travel has become a higher priority than settling in one place. Popular home rental sites such as Airbnb offer long-term rentals all over the world, facilitating this trending nomadic lifestyle and allowing habitants to enjoy homey environments without putting down roots.
Aside from the desire to travel, millennials also prefer to reside in larger cities, where the cost of owning property is significantly higher than it is in more rural areas, which they generally find less appealing.
Another reason that homeownership is declining is that there is simply not enough supply to match the demand. Redfin states that in major metro areas, the amount of homes affordable for the average family has dropped significantly. That means that when properties do become available, bidding wars occur. A family that would typically be able to purchase a home is left unable to compete and will therefore find more options through renting. And while home prices continue to climb, the average salary is rising at a much slower rate, one that can't match the surge in housing rates.
In previous generations, it was much more common to find a starter home to be fixed up and invested in over the years. This made it feasible for a family to own a home without going into massive debt or falling into the category of "house poor" -- slang that realtors use to describe those who own a house that is high in value but struggle to make payments and need to sacrifice other lifestyle choices in order to do so. But with the fluctuation in the housing market over the years, and the major housing bust in 2008, that return on investment is no longer a safe bet.
Ultimately, homeownership is a big decision that should include discussions about individual desires and values, to decide what is important to each person, couple or family. If owning a home is a priority, there is always a way to make that dream come true.