Some say the American dream of owning a home is obsolete.
After decades of growth, the percentage of Americans owning their homes flattened out in the 1980s, crimping the housing market.
And some experts thought the halt might be permanent. Why? Changing lifestyles and demographics, coupled with high costs.
But now low interest rates and improved consumer confidence have triggered a revival in demand from new homebuyers, reassuring bankers and developers that the American dream is still alive after all.
Among the reasons for optimism:
* First-time purchases of homes have rebounded nationwide and now account for almost half of all homebuying.
Such purchases strongly stimulate the national economy because new homeowners spend considerable sums on furniture, appliances, and other durable goods.
* Purchases by people who have never been married are growing, according to a new survey by Fannie Mae.
* Sales of new homes surged by 23% in April to the highest level since early 1986, and housing starts rose for the first time this year. The improvements continued in May.
* Mortgage applications for home purchases have more than doubled since the 1990 market trough. This strong improvement has been obscured by the avalanche of refinancings.
The incidence of homeownership had risen steadily, from about 45% in 1940 to 65.6% in 1980. It has drifted down slowly ever since, reaching 64.1% last year.
Specter of Renters
This long stagnation has generally been attributed to high costs and changing attitudes toward owning a home. Analysts had feared that a rise in single-person households was creating a generation of renters with no interest in ownership.
But a recent survey by the Federal National Mortgage Association found that half of the American public believes this is a very good time to buy a home," up significantly from just 38% last year. Among people between 25 and 34, 80% agreed that homeownership was within the reach of people between 30 and 35, up from just 50% a year earlier.
This bodes well for the industry, as declining homeownership by younger people has dragged down the average.
Clearly, soft prices, low mortgage rates, and rising incomes have combined to make homes more affordable.
"We're getting ready for a very busy summer," said Richard M. Duncan, executive vice president of production for Fleet Mortgage Group, Columbia, S.C.
"Now is the time to buy; rates are low, prices are down, and sellers are willing to deal," he said.
Low rates and the refinancing boom have persisted beyond expectations. Still, nobody doubts the boom will end soon, perhaps by early next year.
Rate Rise Could Spur Buying
But some in the industry believe an uptick in interest rates and home prices could set off a new surge in purchases as consumers grab for affordable deals before they disappear.
Indeed, many thrifts are counting on higher interest rates to drive consumers back to adjustable-rate mortgages and contribute to resumption of their asset growth. Thrifts are generally portfolio lenders and prefer to avoid rate risk by originating adjustables.
The flip side of homeownership is foreclosures, and here again the signs for the longer term are positive.
Another Bright Sign
Foreclosure rates have soared to 1% or more since 1980, against a historical norm of about 0.5%. In recent years, more than 400,000 families a year have been losing their homes to actual foreclosures, and many others to forced sales that avoided foreclosures.
With delinquencies at their lowest levels since 1974 and further declines expected, foreclosures should eventually fall. A return to pre-1980 levels would cut foreclosures in half.
With fewer households forced out and first-time purchases booming, homeownership in 1993 could show its first significant growth in more than a decade.