The housing market has always been one good indicator of the overall strength of any developed economy. Representing about 15 to 18% of the United States' gross domestic product, its relative strength or weakness is a touchstone for investors and traders. Over the last 50 years, beginning with the post-war boom, the market has changed dramatically. Among other things, costs have fluctuated, mortgages have become more regulated, buyers have become older, and down payments have shrunk.
Stacker has rounded up 50 ways that the housing market has changed over the last 50 years. Using data from a variety of sources, like the Pew Research Center, U.S. Census findings, and real estate databases like Zillow, Stacker explored some of the biggest differences between today's marketplace and that of past generations.
Read on to find out why buying a home has become so much more difficult—and what the odds are that the U.S. will experience another housing bubble burst in the next several years.
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Many millennials aren't buying their first home with a family in mind, either. In 1985 (the first year data is available) 52% of first-time buyers were married. In 2016, only 40% of first-time buyers were married, marking a sharp decline in the number of family homes vs. starter homes being sold.
The increase in price also marks a jump in the percentage of income first-time buyers are spending. The same Zillow study reports that in 1970, first-time buyers were spending 1.7x their annual income—an average of almost $53,000. In 2013, they were spending 2.6x their annual income, which only jumped to $54,000.
First-time buyers in 1970 rented an average of 2.6 years before buying their first home. In 2013, the same group was renting an average of six years before making a down payment. It's possible that the massive amount of student debt the average first-time buyer is carrying ($29,000) is causing the delay in purchase, as they struggle to get their financial lives in order.
Finally, first-time buyers make up a smaller portion of the housing market now than they did 40 years ago. In 1981, the National Association of Realtors conducted their first profile of home buyers and sellers survey. According to their data, first-time buyers accounted for 39% of the housing market; in 2017 they only held a 34% share.
Generally speaking, down payments have been on a downward slope over the past 50 years. In 1989, a first-time buyer paid an average of 10% while a repeat buyer was on the hook for 23%. The lowest down payment for first-time buyers on record was 2% in 2005, and 13% for repeat buyers in 2012. As of 2016, the average down payment is 6% for first-time buyers and 13–14% for repeat buyers.
While down payments have gone down, house sizes have been on the rise. In 1970, the average floor area of a new single-family home was 1,500 square feet. In 2014, that number had jumped to 2,657 square feet, giving families more than 1,100 more square feet in which to live, work, and play.
The Joint Center for Housing Studies at Harvard University also found that single-family home sizes have skewed bigger over the past several years. Small single family homes (those under 1,800 square feet) accounted for 37% of completions in 1999 and only 21% of completions in 2015. Meanwhile, completion of large homes (those over 3,000 square feet) doubled, from 17% in 1999 to 30% in 2015.
In the 1950s and ‘60s, the majority of the homes on the market were starter homes, in large part because many of them were built with the backing of various government financing programs that lowered costs. Today, the number of starter homes on the market is decreasing an average of 17% each year, which adds just another hurdle for first-time buyers.
Starter homes aren't the only type of home that's getting built less often. Between 2007 and 206, 8.98 million houses were constructed, a staggering decrease from the 15 million houses that had been completed every 10 years from 1970 to 1990, according to the same Harvard study.
Fewer homes are being built now than ever before, and there are also less homes on the market than in previous years. Hitting a record low in December 2016, only 1.65 million existing homes were up for sale, according to Harvard. Additionally, inventories dropped in 78 of the top 100 metro centers that year, down 39% on average from 2010 (the first year data is available).
One of the biggest events in the housing market over the last 50 years was the bursting of the housing bubble in 2008. A housing boom, which began in 2007, saw a rise in real estate speculation and excessive customer spending, as people began viewing houses as something that would only increase in value over time. When this proved to be untrue for various reasons, the bubble burst and home values everywhere went down, while prices on mortgage-backed securities dropped as well.
One of the main culprits in the housing bubble burst was mortgage-backed securities. Introduced in 1971, they are essentially shares of home loans sold to investors. An even bigger group of these shares can be packaged together into tranches and collateralized debt obligations. In 2008—and today—these shares are so divided and spread across the financial spectrum that a major swing in the housing market could bring the economy crashing down, according to some financial experts. On the other hand, as the housing market booms, mortgage-backed securities are an excellent way to make money.
Before the market crashed in 2008, there were dozens of ways families could choose to finance their home. From interest-only loans, to balloon payment loans, to adjustable-rate mortgages with an extremely high cap. Post-crash, those options have become extremely limited. Now it's a choice between a fixed-rate loan or an adjustable-rate mortgage that meets “qualified mortgage” standards.
Before the crash, even those without good credit had options, such as no-documentation loans. In fact, about one-third of all loans in 2006 qualified as low or no-documentation loans: Not so anymore. Today, all loans are documented, and those with poor credit scores are unlikely to receive a loan at all.
A second housing market crash could be on the horizon, according to many experts. Home prices have risen steadily since the 2008 crash, but there is some concern that they've passed a sustainable level. As supply has increased and demand has decreased over the past two years, the U.S. could be standing on the edge of a bust, or at least a dramatic slowdown that would have long-reaching effects on the economy.
There are more renters now than any other time over the last 50 years, according to Pew Research. In 1965, 37% of people rented their home. By 2006, that number had plummeted to 31.2%, but as of 2016, it's back up to 36.6%. From 2006 to 2016, the number of American households increased by 7.6 million, but the number of homeowners remained relatively flat, thanks to the dramatic increase in renters.
The number of renters has increased in almost every demographic group, but the biggest jump has been among people younger than 35, according to Pew. In 2006, 57% of adults under 35 rented their home; as of 2016, it was 65%. Could a tighter economy and increased student debts be the main culprits behind young adults relaxed attitudes about buying?
It turns out that one of the reasons behind the increase in long-term renters could actually be how much they spend on rent in their younger years. Young adults spend an average of $93,000 on rent by the time they turn 30—a whopping 45% of their income. Baby boomers, in comparison, only spent 36% of their income by the age of 30 on rent, and in 1960, only 24% of renters were even cost-burdened, spending more than 30% of their income on rent.
In 1970, the median home value was $17,000; the median rent was $108, and the median household income was $8,734. Many Americans had the luxury of deciding whether to rent or buy during this time. By 2010, the median home value was $221,800; the median rent was $901, and the median household income was $49,445. As home values and rents have increased, incomes haven't, making it much harder to buy.
In 1995, only 2% of prospective buyers utilized the internet in their home search, according to House Wire. By 2005, the number had jumped to 75%, and today a stunning 90% of prospective buyers go to the internet while searching for the perfect home. Even with the increased dependency on the internet to find the right home, almost all buyers still close the deal through a real estate agent.
As long as people need somewhere to live, the housing market will exist in some form. But the types of homes people are buying (or renting) has shifted dramatically over the years. Take, for example, newly built homes. In 1995, there were 667,000 newly built housing units that sold. In 2005, that number peaked at 1,283,000, and as of 2017, it had dropped back down to 614,000.
The number of existing homes sold each year has fluctuated greatly as well. In 2005, there were 7.08 million existing homes sold. By 2008, the number had dropped to 4.12 million, and in 2018 it was forecasted that 5.5 million existing homes would sell.
Apartment complex construction has reached a 20-year high, according to Yardi Matrix. In 1997, there were 200,613 units completed, while 2017 saw 346,310 new units added to the market. In order to meet the increasing demand, it's estimated that 4.6 million new apartments will need to be built by 2030.
As the demand for manufactured homes has gone up, in large part due to the overall cost of housing, the number of corporations and plants making mobile homes has gone down. In 1990 there were 100 corporations making the homes in 250 different plants. Today, there are only 45 corporations and 123 plants doing the work.
Only 8% of newly constructed housing units were condominiums in 2016, for a total of 29,000 units. According to the Joint Center for Housing Studies, this is less than one-fifth of the number of condominiums built in 2006 and less than any year dating back to 1974. While there is a smaller number of single-family houses being completed, they're not being replaced by resident-owned condos, but by renter-filled apartment buildings.
As millennials are currently the largest adult generation, it's no surprise that they're the ones buying most of the homes: approximately 32%. In comparison, Gen X was buying 27% of homes in 2015; younger and older boomers bought 15% and 16% of homes respectively, and the silent generation (aged 69 to 89) only bought 10% of homes.
Nearly 1.5 million elderly people live in nursing homes, a major jump from the 793,000 living in nursing homes in 1970. As of 2014, there were 16,100 nursing homes across the country, up from the 15,300 open in 1970. The number of beds in these facilities has increased from 879,000 to 1.6 million, possibly indicating that many seniors consider this a viable housing arrangement for their golden years.
Prior to 1985, assisted living didn't really exist. There were nursing homes for those with health problems, and philanthropic homes for seniors who were financially insecure, but retirement homes for mostly healthy, monied seniors didn't exist in the same way they do now. The passing of Medicare and Medicaid acted as a genesis for these homes, which now house about 1 million seniors.
Between 2010 and 2040, it's estimated that the country's senior population will grow by 90%, meaning that this senior demographic will have a major impact on the housing market. Approximately 40% of investors believe that the independent sector will grow the most, according to a recent analysis done by real estate firm CBRE. Seniors are likely to rent their homes, mostly in active, engaging, and walkable neighborhoods, instead of moving into a nursing home or assisted living home.
In the ‘50s and ‘60s, thousands of white people left the country's major cities, striking out for the suburbs where they could continue to live separately from the minorities that were moving into formerly segregated cities and towns. Eventually, there was a mass exodus—involving people of every race—to the suburbs, and by 2010 over half of the U.S. population lived in suburbia.
Around the turn of the millennium, millions of young adults moved back into major cities. Eager to embrace the energy, diversity, and authenticity that many major cities offer, these millennials reversed the generations of white and urban flight before them.
Many large cities, like New York City, Chicago, and Houston grew faster than their surrounding suburbs from 2000 to 2015. But then the suburbs outgrew their cities in two-thirds of the largest metropolitan areas in the U.S. over the two following years, according to The New York Times.
While many suburbs today are fairly mixed in the races and ethnicities they house, it hasn't always been that way. From 1934 to 1968, the Federal Housing Administration explicitly refused to back loans to black people and even those who lived near black people. This policy made it incredibly difficult for black people to own their own homes 50 years ago and kept them out of the suburbs and white neighborhoods—amplifying the effects of segregation.
Another unconstitutional policy, redlining was a system of raising and appraising neighborhoods that deducted points for older, more dilapidated areas, as well as areas where people of color were living. While it's not in practice today like it was 50 years ago, the effects of the policy are still felt, affecting the housing market and people of color's ownership opportunities in very dramatic ways.
The Great Recession changed a lot of things in the housing market, especially in regards to African-American homeownership. Homeownership is directly linked to wealth accumulation, and discriminatory and racists policies made it difficult for African-Americans to own homes for decades. After the recession hit, black populations suffered another setback, seeing home equity declining by 28%. This forced many black families to return to renting, only furthering the racial divide in wealth.
While urban and suburban counties have gone back and forth on being the most desirable place to live over the last 50 years, rural counties remain almost completely unchanged. In 2000, 45 million people lived in rural counties, and by 2016 that number had only increased to 46 million, a 3% change.
One of the latest trends of the housing market is all of the hype surrounding micro-apartments and homes. And while some have chosen to live in these types of housing units, especially those in cities where rents are skyrocketing, two-thirds of people still report that they'd prefer to live in single-family suburban homes. The only thing that's stopping them? Prohibitive costs.
While some people are perfectly fine living in 300 square feet as long as they can live alone, others would rather rent their extra space to strangers in order to make money off rent. Airbnb officially launched in 2008, connecting those in need of short-term rentals to those with extra space. The company has been so successful that they've been charged with raising rental rates and home prices, and many cities have begun putting restrictions on how Airbnb rentals can run in their jurisdictions.
One reason that housing prices have been steadily increasing is that labor necessary to complete those houses has become increasingly expensive. In 2015, the construction industry had 7.2 million workers, a decrease of 20% from 2007. Unemployment also dropped in the industry, from 13.9% to 6.3%, according to Harvard's Joint Center for Labor Studies. This shift indicates a shortage in the labor force—which, while good for construction workers, isn't a great sign for those looking to build.
Labor isn't the only external factor driving up house costs. Land, lumber, and fees (like building permits and water connectivity fees) have become increasingly expensive over the past 50 years. The National Association of Home Builders now estimates that 61.8% of the sales price goes to construction costs, a jump from 54.8% in 1998.
In 2018, Americans were poised to spend $340 billion to upgrade their homes. This marked the best year for home improvements over the last decade. As moving and new construction become increasingly cost prohibitive, it seems that many Americans are trying to find new ways to make do with what they already have.
While less quantifiable than many of the other things on this list, many homeowners and potential homeowners report feeling lingering nerves due to the housing crisis. Fifty years ago, buying a home was seen as more of a sure thing, a great investment in the future. After 10 million people nationwide lost their homes to foreclosure during the crisis—and the U.S. saw a collective net worth loss of $16 trillion among homeowners—owning a home has become more of a gamble.
Another lasting effect of the housing crash? Appraisers and lenders are no longer able to communicate directly. Before the crash, lenders were able to chat with appraisers about their expectations for a home's valuation, which they would then match with escalating prices. Today there are several regulations in place preventing this kind of communication, in an effort to stop the formation of another bubble.
In 2017, an estimated 553,742 people were homeless on any given night. The places with the highest homeless populations were major urban centers like New York City, Los Angeles, and Chicago, where increasing rents priced many out of a home. Since its emergence in the 1980s, the homeless crisis has only become more severe.
It's a great point in time to own a home, and a terrible time to try and buy one. The U.S. is certainly facing an affordable housing crisis, and if things continue at their current rate, the housing market could remain constrained for the next several years.