The American Dream is becoming a nightmare for many

There’s no place like home. Home is where the heart is. Owning your own home is the American Dream.

 For the past 36 years, I have been immersed through my job in the real estate industry. In that time, I have witnessed major changes in home ownership trends. What is abundantly clear is that America housing is in an affordability crisis. For too many people, what used to be a rite of passage for homebuyers has become a nearly impossible dream. 

There are numerous reasons for the crisis. Our country’s population has nearly doubled since 1960. Homeownership rates from 1980 to 2020 have remained stuck at around 64 percent, peaking in 2005 at 69 percent. For years, homebuilders have complained that they cannot make a profit by building smaller, more affordable homes because of increases in their costs, including permitting, raw materials, and other government regulations. So the trend toward McMansions has proliferated. 

The advent of programming on cable channels like HGTV, which is essentially advertisements for overpaying, overconsumption, get rich quick schemes, has encouraged homeowners to treat their real estate like game shows and ATMs. Shows like “Flip or Flop,” “Dream House,” and “Urban Oasis” all portray unrealistic depictions and expectations about what home buying and homeownership are.

Lenders bear a large part of the blame for the 2007-2008 economic collapse, having figured out complicated and opaque ways to securitize mortgages. Of course, there were other culprits including bond rating agencies and dishonest appraisers. Getting a loan seemed to only require that the borrowers had a pulse. We all know how that turned out.

And since the collapse, there is the increased role of institutional buyers flooding the real estate market with cash, gobbling up properties across the country. According to the New York Times, one in seven real estate transactions in the United States involves an institutional purchaser. In large cities, that rate is closer to one in four. Many of these properties become part of portfolios, controlled by big companies who have no incentive to be good neighbors, only to squeeze maximum profit from homes.

 In many cases, this type of ownership is detrimental to neighborhoods and squeezes the supply of homes. The institutional purchasers offer cash, which appeals to sellers because they can close more quickly and not involve lenders.

Another recent trend has been for older homeowners to stay in their homes longer because of the health threat posed by being in retirement communities during a pandemic. That has kept properties that might have been appropriate for first time homebuyers off the market. 

Online real estate company Zillow recently suffered major losses because its artificial intelligence overvalued numerous properties it had purchased. Zillow’s online valuations, along with other companies like it, have inflated property values for years.

In the current overheated housing market, I hear stories about potential buyers being coerced into snap decisions about making offers because other buyers are lurking. When making one of the biggest financial decisions of their lives, buyers should be taking their time to consider the ramifications of real estate purchases. Escalation clauses in purchase agreements precipitate bidding wars which may benefit real estate agents and lenders, but ultimately lead to bad financial decisions for purchasers.

 Experts recommend that housing expenses should not exceed 35 percent of income. How many of these rushed decisions lead to financial difficulty or ruin? These are not the signs of a healthy real estate market.

There are many bad actors involved in foreclosures and tax sales. According to a recent South Bend Tribune article, the Indiana Legislature is crafting new laws that would prevent predatory or tax delinquent purchasers from buying property on tax sale or through foreclosure. It’s a good idea, but it’s also easy for these folks to hide behind fraudulent business entities. 

Everywhere you look, people are struggling to find affordable housing. 

Owning a home is a primary way families can build generational wealth that can be passed on to heirs. One of the biggest reasons that African American families, on average, have much lower net worth to pass on to heirs is that for decades they have been denied the opportunity to purchase real estate because of racism and redlining.

In 2021, the median price of an existing home in the United States was $350,000. I must hang out with the wrong crowd, because I know very few people who could afford homes at that price without endangering their long term financial stability.

I recently saw a cartoon with a parent explaining to her child, “For a moment, we managed to monetize everything.” Unfortunately, that is what we are doing to real estate. It is true that people can improve their wealth by owning real estate. But as our affordable housing shortage demonstrates, over inflating values, building mostly enormous houses, and the flood of institutional owners are not helping the majority of Americans.

 A healthy housing market would raise homeownership levels and increase individual wealth, not the wealth of institutional owners, investors, and landlords. The health of our neighborhoods and economy depends on the decisions we and our elected officials make about what we want our neighborhoods to look like.