Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Haven’t More Americans Bought Homes?

We interviewed Dr. Bill Watkins, Ph.D., associate professor of economics and executive director of the Center for Economic Research and Forecasting at California Lutheran University, about why, despite low mortgage rates, more people haven't bought homes.

Q: With mortgage rates still near their historic low, why haven't more people bought homes? Is it still too difficult to get financing, is it uncertainty in the job market or the lack of a down payment that prevents borrowers from purchasing homes? What is it?

A: There are several reasons. One contributing factor is that real estate loans are still a little difficult to get. I believe the bigger reasons are just due to the housing cycle itself. Let me explain.

Homeownership rates
In 2007, 2006, homeownership in the United States – the percentage of people who owned homes – peaked at about 69 percent. And if you look at historical data, it's very rare for the homeownership rate in the U.S. to get above 64 percent. When it does, bad things can happen.

Our interpretation of the real estate collapse was that we wouldn't see solid real estate markets return until the homeownership rate got down to about 65 percent. Now it's around 65 percent. That's a necessary pre-condition for markets to improve.

Investor participation
I would like to point out that a lot of the real estate demand that we saw over the past two years was the result of investor activity – and this had to happen. If homeownership rates went from 69 percent down to 64, somebody has to buy up those homes. We saw investors jump in to fill that need.

Since the investor model requires rents and capital gain to be sufficient in order to justify the investment, investors come in and go out at about the same time. I think it took investors quite a while to actually recognize the opportunity. But once they did, you had the big investment houses of the world doing this.

This has mostly run its course as we don't expect to see a lot of price growth going forward.

Household formation
What it really takes to sustain an entire housing market is two things: household formation and births.

Household formation and births are being delayed because young people have had a tough time in this economy. Ever since 2007, young people haven't been able to get the jobs they expected out of college, and many are saddled with lots of debt. Huge percentages are living with mom and dad. That is slowing the real estate recovery down.

In a good market, homeownership is the result of people getting married, forming a household, having kids and buying at the bottom and sort of pushing everybody up. But we're not seeing that.

Until we see more household formation, we probably are not going to see real significant gains, preventing a return of what we generally consider a normal real estate market.

Luxury-home sales increasing
There is one caveat here: Luxury home markets are doing really well, and I believe the reason for that is a little different.

There are always a lot of wealthy people, even when the economy is doing poorly. Wealthy people tended to be hurt less by the recession than most of us because a smaller percentage of their assets are tied up in real estate. Wealthy borrowers were nervous and didn't buy for a while. Wealthy Americans are not nervous right now and we are seeing some demand return to the high-end market as a result.

Predictions for the California housing market
In California, in particular, we expect luxury markets in attractive places such as in San Bernardino, Monterey and Marin County to do quite fine. However, there are huge variations in other California markets. The San Joaquin Valley is probably going to do poorly, unless locally propped up by oils, as in Bakersfield. Coastal markets in general seem to do better than inland markets, in part because coastal California is a desirable place to live. If you might not be able to afford a home in Montecito, where Oprah owns property, you might be able to afford a single-family home in Santa Maria.

The original article: Why haven't more Americans bought homes? appeared on

Why haven't you bought this top stock yet?
There’s a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it’s one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Additional mortgage articles can be found on

Homebuyer timeline: Here's exactly what you need to do to get ready to purchase a home

See today's current mortgage rates

How much of your monthly mortgage payment will go toward principal and interest?

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2895637, ~/Articles/ArticleHandler.aspx, 9/3/2015 3:41:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...
HSH has been a trusted source of mortgage data, trends, news and analysis since 1979. HSH’s market research, tools and commentary help homeowners, buyers and sellers make smart financial decisions.

Today's Market

updated Moments ago Sponsored by:
DOW 16,359.63 8.25 0.05%
S&P 500 1,950.55 1.69 0.09%
NASD 4,739.35 -10.63 -0.22%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes