Housing crisis pushes American Dream Out of Reach for young buyers

Home possession has long been considered a cornerstone of the “American dream”, because it symbolizes the ability to build richness and to guarantee financial stability in the long term.

Nowadays, that dream is changing somewhat, because younger generations choose to rent at home for longer than ever or to stay at home with their parents. It is a consequence of the affordability crisis that continues to exist on the housing market, according to real estate mogul and founder of the Agency, Mauricio Umansky.

“At the end of the day, the American dream is to possess real estate, to build equity, pay off your mortgage and have a house,” Umansky said. However, achieving “that the American dream of owning your house takes longer” because high mortgage interest and house prices continue to weigh on affordability, he added.

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“The younger generation really can’t have houses,” he said. “Again, I use the affordability of the word, but it is a real affordability problem.”

From May, the typical American household should spend 44.6% of their income to pay a median-priced home, according to recent data from RealTor.com. This is well above the recommended threshold of 30%, and emphasizes how “affordability is not only tense, it is almost extinct,” said Realtor.com economists in the recently published report.

Prices are determined by supply and demand in the market, and although Krimmel said that prices do not shoot up the way they did during the COVID-19 Pandemie, they do not fall, not even with an increase in inventory. The offer has risen year after year 31.5%, according to the latest data from RealTor.com.

A row of houses along Valley Avenue Southeast in the Washington Highlands district in Washington, DC on February 23, 2024. (Tristen Rouse for the Washington Post / Getty images)

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“When the supply of houses on the market has risen, but prices do not fall, this is an indication that the demand in the market is also very weak,” Krimmel added.

High rates continue to weigh on request and in turn according to the sale of home according to Krimmel. Although the average rate of a 30-year mortgage last week fell to 6.77%, the rates are still “persistently high because the FED still has to indicate that a reduction is on hands during their next meeting in July,” Krimmel added.

Younger generations choose to rent from their parents for longer than ever or to stay at home with their parents. (Istock)

However, if and when the rates are completed, Umansky does not believe that consumers will ever see the interest rates again at that reach of 2.5% to 3%.

Given this dynamic, Umansky said that his company is starting to see trust in renting. Moreover, his friends and customers see their children return home.

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“We just see a lot more of that and … they have the chance to save money,” he said. “The idea of ​​leaving home is not as necessary as before, because parents are also a bit liberal and give their children a little freedom to go in and out of their house.”

Krimmel said that consumer confidence also remains low, which suggests that consumers do not expect their incomes or purchasing power to grow much in the coming months, which is “the final obstacle to improving the prospects of the home affordability,” he said.

Economists of brokelaar.com say that there are still solutions to make homes more affordable, such as increasing income or reducing housing costs. One way to do this is to build more affordable houses, according to the June Realtor.com report.

“New housing stock and new housing, especially at affordable price points, can help alleviate the price pressure on tight housing markets,” the report said.