Despite Climate Concerns, Americans’ Dream of Homeownership Persists

Is the American Dream Still Alive?

With damage reaching tens of billions of dollars from two unprecedented storms that struck the Southeast in October, combined with skyrocketing property insurance and taxes affecting millions nationwide, it may appear that climate change is sealing the fate of homeownership.

Nevertheless, a significant number of Americans are still eager to pursue homeownership. Despite numerous obstacles, the homeownership rate in the U.S. remained relatively stable in the third quarter, according to data released by the Census Bureau on Tuesday. At 65.5%, it closely matches the 20-year average of 66%.

Tara Sinclair, director of the Center for Economic Research at George Washington University, sees why many still aspire to own a home. She believes that for most Americans, owning a home is likely a better long-term financial decision than renting, even if it may not feel like it at the moment.

“We’re still feeling the aftereffects of shocks from the pandemic,” Sinclair explained. “It’s been a convergence of so many challenges at once.”

Pandemic, Fear of Missing Out, and Inflation Influence

The period of 2020-2021 is memorable for its record-low mortgage rates and a prevailing fear of missing out, which pushed the homeownership rate to its highest in over a decade. However, the subsequent inflationary rebound has been equally dramatic, according to Sinclair. Mortgage rates skyrocketed, followed by home prices, and a boom in apartment construction has made renting significantly more affordable. For much of this year, the straightforward economics favored renting.

Additionally, the insurance industry has begun to integrate climate risk into its pricing models due to natural disasters and other factors. In some regions, homeowners insurance premiums have nearly doubled over the past five years, and in others, private-sector policies are scarcely available.

Today, Americans in many areas are faced with decisions ranging from existential—whether to rebuild—to practical concerns like affording monthly expenses.

However, these considerations don’t fully encompass the choice between renting and owning, Sinclair noted. Just finding a home to purchase and securing financing can be daunting. Home sales are at a 14-year low, and the limited number of listings is likely driving prices up. Currently, only those who absolutely need to move are engaging in the market, typically those in higher economic brackets not constrained by mortgages.

Homeownership Remains an Aspiration

Over the years, the American economy has increasingly shifted more risk onto individuals, Sinclair pointed out. This is evident in the transition from corporate pensions to 401(k) plans, where Americans must save and manage their own investment portfolios. In the realm of housing, this trend is mirrored by encouraging more people to buy homes, thus transferring responsibilities like maintenance from landlords to owners, she explained.

Despite the expenses and hurdles, whenever there is a perceived opportunity for more affordable homeownership, consumers are quick to act. For instance, in September, when mortgage rates dipped to their lowest in nearly two years, there was a spike in mortgage applications for four consecutive weeks.

“What will happen when interest rates stabilize at a new normal?” Sinclair questioned. “Will this lead to those with low mortgage rates putting their homes on the market, thus increasing available inventory? We’re all waiting to see whether this is a permanent change or just a temporary congestion caused by the pandemic.”