A flight from the suburbs?
Younger adults prefer urban living. Planners and developers will need to adjust.
More Americans are choosing to live in cities rather than surrounding suburbs — a phenomenon not seen in a century. A recent U.S. Census Bureau report attributes the growth in cities’ populations to young adults, leaving demographers to speculate on this age group’s reluctance to plunge into home ownership at a time when many older Americans struggle with underwater mortgages.
Certainly part of the growth seen in youthful urban renters can be attributed to the sluggish job market and to their uncertainty about the future — hangovers from the Great Recession. But young adults also are waiting longer to marry, start families and follow their parents’ and grandparents’ example of purchasing a house with attached garage on a half-acre suburban cul-de-sac. This pattern was emerging pre-recession, so not all can be explained away by current financial pressures.
July 8, 2012 - 8:05 AM
The poor economy is the main reason that nationally there is a modest movement away from the suburbs.
It is becoming more difficult to own a home due to high property taxes, difficulty in qualifing for a mortgage, lack of job security, etc.
It’s becoming more practical to be a renter than a home owner for young people.
This is not good since home ownership is the principle source of wealth for the average American.
I suspect liberals are elated about this unfortunate trend since urban living appeals to the environmentalists. The less private ownership of property, the better. They want us all packed into highrise high occpancy boxes and walk, ride a bike, or take the bus to work.
I like my suburban lifestyle with its well airconditioned, 2 car garage, suburban home along with a yard and garden that is kept well fertilized and watered.
1. Young people are not buying homes simply because they cannot come up with a 20% down payment. Congress decided that mortgage rules were to lax with not enough equity invested by homeowners (your many complaints about freddie and fanny) and therefore put in the 20% down rule. Few young people can come up with the down payment anymore.
Ask your Realtor about young people wanting to buy. They simply cannot qualify for a mortgage with even cheap housing at $100,000 +.
2 – Congress should not be dictating mortgage terms like that – I think you and I agree on that, Rich.
And to gouge ‘em all, rents have increased accordingly. Look it up. You’re gonna pay the man no matter where you live or what ownership model you choose.
3. I know it is bad for the young person and I know it is bad for housing; but, when banks went so far overboard in loaning 125% of value there is always an over reaction to a problem.
How and why the banks started loaning beyond equity I will never understand, but they did. However, they have now cut off most families from homes. Is that a good idea, I can’t fathom that.
Richard…please enlighten me as to the “20% down rule”. Housing prices are at all time lows.
As I understand it, which is quite limited, 90% of loans are exempt from QRM, e.g., Fanny & Freddie backed loans (good or bad, do as I say, not as I do).
5 – had to meet quotas Rich. Get someone in a house anyway they could. It certainly didn’t make sound business sense.
Same topic at the NY Times.
http://www.nytimes.com/2012/07/08/opinion/sunday/struggling-in-the-suburbs.html?scp=1&sq=struggling%20in%20the%20suburbs&st=Search
Hardship has built a stronghold in the American suburbs. Whatever image they had as places of affluence and stability was badly shaken last year, when reports analyzing the 2010 census made it clear that the suburbs were getting poorer. …
Unless things have fallen off markedly in the past year, the volume of FHA loans (with a 3.5% down payment requirement) has grown substantially: http://www.doctorhousingbubble.com/fha-insured-loans-now-cross-a-giant-tipping-point-exceeding-1-trillion-in-book-value-at-risk-fha-loans/
Unfortunately…
“Keep in mind that anyone that purchases a home with the typical 3.5 percent down payment is underwater from day one. Why? Well you have to sell your home and that still costs 5 to 6 percent if you use a real estate agent. And home prices haven’t exactly been going up in the last year.”
Dr. Housing Bubble is always an interesting read.
And to #6 (Jim Lucas): Actually, housing prices are only now approaching historical norms (about 4X annual income): http://www.ritholtz.com/blog/wp-content/uploads/2012/04/Median-Home-Pirce-to-Median-Income.png, with notes at http://www.ritholtz.com/blog/2012/04/the-problem-with-home-prices-part-3-or-5/. To get to “all time lows”, prices would have to drop another 10% or so.
#10 Brian…in addition, there are points/pre-paids, appraisals, attorney & transfer fees & taxes, various escrows, inspection fees, required repairs…which often time get rolled into the loan.
Yes, the current economic climate and housing market are definitely factors. However, those of us over 35 or so don’t really grasp how differently those under 30 view the world.
They have no memory of the crises which cities endured from the rise of suburbs in the 1950s through the crack crime wave of the 1980s. Millenials don’t share the jaundiced views of cities of earlier generations.
The car culture is much weaker among Millenials, who are more apt to view autos as utilitarian devices. Kids in the 1950s and 1960s couldn’t wait to see the new models every year. Today, the latest Apple product or video game are what define the cultural zeitgeist.
No, suburbs aren’t going to disappear and will continue to be appealing to many people. But, the postwar decline of urban areas is ending. And, developments in both urban areas and suburbs will need to cater to the different preferences of Millenials and later generations.
Urban living is not in conflict with home ownership. There are plenty of condos in downtown areas. As the editorial points out, there are areas close to downtown Roanoke available for development or redevelopment. I personally think building some urban townhouses adjacent to downtown would be a good next step.
The economy is definitely a major factor. Housing prices and a lack of jobs, definitely major factors. Other major factors include (a) association of suburban lifestyle with isolation and monotony; (b) lack of transportation choices and a dependence on a single form of expensive transportation to get anywhere, which is increasingly costly and inefficient both in time and money; and, (c) changing tastes in which the romanticization of urban life as a return to true American social life is attracting, perhaps as a response to their suburban upbringings, young people to downtowns and denser urban centers with stronger social networks–a romanticization that is similar to the idealization of “suburban” life by the Boomers, who saw it as the “American dream” of their parents and reflection of “rural” American life.
I would have loved to have gotten a place in a city, but in my situation, it was simply unaffordable. It was far more cost-effective to move 15 miles from where I work and put a double-wide on land we had, than to buy or build a home in an urban area. The cost of gas doesn’t come close to eating the price advantage. Our home, which assesses as real estate since it’s on a permanent foundation, was not even 2x my annual salary at the time we built. Our payment, including taxes and insurance, is a scant 13% of my base pay…we wanted to make sure we had an affordable home in the event my income fell…which thankfully, it has not.
But, I do see the appeal of urban living…especially in some of the renovated buildings that house some nice condos. No yard work, walking distance to many ammenities…sometimes workplaces included in that walking radius. A lot of money can be saved on owning a vehicle, because by living so close in, a single car may suffice for a couple…whereas my wife and I must each own a car since we live in a semi-rural area that has no chance of being served by a transit service. If we ever do move from where we currently live, it will likely be into an urban downtown area.
Good thread. I don’t see the suburban/urban choice as a political one per se. There are economic factors & questions of “social engineering” of government, but, at least to this point, it looks like a life-style choice to me.
8. 89hoo – as has been made clear, the banks making the 125% of equity loans had no obligations to do so. It was simply a big money maker with high interest rates.
6. Jim Lucas – Mortgages now require a 20% down payment in most all residential circumstances. For commercial real estate it is 30% down at least. It has nothing to do with the price of the home.
A political choice? No. Political consequences? Absolutely. Many cities (city propers) are quite politically disadvantaged relative to their suburbs. Inner-city neighborhoods are often fragmented and derelict, suffering from a range of social problems and declining economic opportunity. High rates of unemployment persist over a generation and a decline in property tax revenue to the city have resulted in poor inner-city schools, minimum investment opportunities, aging infrastructure and growing environmental and health issues in the cities. Appeals to state governments have often been met with rejection, because suburban communities boast strong social and economic networks that overwhelming demand that the cities they surround be shut off even further–to protect suburbanites and their money.
If people are moving back into the city and into denser, more diverse communities, social and economic networks will be rebuilt and the balance of political power will shift inward. The suburbs, in such a scenario, however, will rise as the new urban social and economic problem. Perhaps cities will be able to annex derelict suburbs and shave them off the way Detroit is doing with its inner city neighborhoods.
16 – Rich, you are right – I stand corrected.
I need to point out, though, that those 125 per cent equity loans are only available for loans that are secured and guaranteed by Fannie and Freddie; since there is no risk of loss to the banks – only to the taxpayers – why WOULDN’T the banks make those loans? Why would Fannie and Freddie make such promises?
“Background: In February, the Obama administration announced the Making Home Affordable initiative to prevent foreclosures. A major part of the plan is the Home Affordable Refinance program, known in the mortgage industry as HARP. It’s designed to let homeowners refinance even if they owe more than the house is currently worth because of a decline in property value.
Initially, the Home Affordable Refinance program was set to allow people to refinance for an amount up to 105 percent of the current value of the home, as long as the mortgage was owned or guaranteed by Fannie Mae or Freddie Mac…Last month [June], that upper limit was raised to 125 percent, meaning that someone could refinance for $125,000 on a house whose appraised value has plunged to $100,000.”
Just as Uncle shouldn’t mandate loan terms (20% down), Uncle should also not guarantee bad loans. Besides being stupid, it’s inflationary.
Ooops…link: http://www.bankrate.com/finance/mortgages/want-to-refinance-know-the-details-1.aspx
Richard, what are your thoughts on QRM requirements?
21. Jim – I think the requirements were an over reaction by the banking industry, bank regulators, and Congress. The banking industry has grown so used to leveraging mortgages so thin that they no longer function as bankers in the traditional sense. Accordingly, their failure in 2008 led to an over reaction to fix their foolishness. The result has stalled the housing market and made housing unaffordable for many. A down payment should be required along with fixed rates. The QRM set the bar too high.
7. Jim the loans not subject to QRM have a higher cost which in affect raises the amount of money needed to get the mortgage.
#22 Thanks Richard. I agree. I’m not even sure a down payment, other than nominal, should always be required, depending on the other factors.
Back to more market & less regulation. The latter of which has failed us initially & in the “over reaction”.