Do most people still want to own their home?

There was a fair amount of criticism at this site last month when I characterized the housing price situation in the Minneapolis area as “a basket case,” based on the Case Shiller survey of housing resale prices in 20 major American cities. Minneapolis was at the bottom of the heap.

The numbers for February are out today from Case Shiller and as much as we might be tempted to put lipstick on a pig, there’s simply no other way to describe Minneapolis’ housing price situation. It’s bad.

The seasonally-adjusted numbers for February show Minneapolis near the bottom again.

City
Change from January
Detroit
2.0%
Cleveland
1.2%
Washington
0.7%
Chicago
0.7%
Dallas
0.5%
Atlanta
0.4%
Phoenix
0.0
Los Angeles
-0.1%
Denver
-0.2%
New York
-0.2%
Las Vegas
-0.3%
Tampa
-0.4%
Boston
-0.6%
Charlotte
-0.6%
Portland
-0.8%
San Diego
-0.9%
San Francisco
-1.1%
Minneapolis
-1.3%
Miami
-1.4%
Seattle
-1.7%

There’s something wrong when Cleveland and Detroit lead the nation in housing prices. True, of course, they had nowhere to go but up. But at least they went up.

Minneapolis has now declined for eight consecutive months, still a far cry, though, from the 23 consecutive months of housing value declines that started in 2007.

City
Change from a year ago
Washington
2.8%
Boston
-1.0%
Dallas
-1.2%
San Diego
-1.8%
Los Angeles
-2.1%
Denver
-2.5%
Cleveland
-2.8%
New York
-3.1%
San Francisco
-3.4%
Detroit
-3.6%
Charlotte
-4.9%
Las Vegas
-5.0%
Atlanta
-5.8%
Tampa
-5.9%
Miami
-6.1%
Portland
-7.0%
Seattle
-7.4%
Chicago
-7.5%
Minneapolis
-8.2%
Phoenix
-8.5%

What’s particularly troubling is the pace of decline. In 2008, the Minneapolis area’s prices declined 19%. But that decline pace slowed to 2.1% in 2009. In 2010, however, it increased to 5.1% and now the year-over-year drop is over 8 percent.

But lower prices usually attract people to the housing market, making owning a home more affordable than a year or two ago. That, however, may be changing.

“A lot of Americans don’t want to own a house; they don’t see it as a good long-term investment and they don’t see it as a better way to live and raise a family,” said David Blitzer of Standard and Poor’s, which runs the survey.

Is that a sea change in the American Dream? “It’s really not quite clear,” he says. “If a year from now, we’re sitting in the same place, we’ll have no choice but to conclude that a lot of people who would’ve bought a house 10 years ago, aren’t interested in it anymore.”

You can find all the data here.

  • http://stpaulrealestateblog.com teresa boardman

    What you are saying is true about a growing number of people who are no longer interested in owning a home. I am finding a new group of buyers too. they are older and have rented for many years. They decide to buy because it is cheaper than renting for them. they live in the more expensive buildings and have not seen any rent reductions. Rental prices have not kept up with the times and property owners are not offering rent reductions to long term renters.

    Our local market is a mess. there isn’t anything we can do about it so we deal with it.

  • bsimon

    The problem likely isn’t one of desire so much as one of ability.

    I haven’t read it yet, but Ezra Klein (washington post blogger) links to a story today that renters are spending higer percentages of their income – sometimes more than 50% on housting costs. That is unsustainable. But buying isn’t necessarily cheaper, particularly if you have to come up with a higher down payment (which is tougher to do, if you’re spending half your income on rent).

    In other words; the problem is on the employment & compensation side. Those of us who already have homes look at our home’s values relative to what we paid – so price declines start to get worrisome. But for people entering the market, year over year price changes aren’t what’s relevant. What IS relevant is whether the home is affordable on cash flow. i.e. do I make enough money each month to qualify for a mortgage with a reasonable amount of money down? And, if I do, is that monthly cost lower or higher than the cost of rent?

    Backing up to generalisms, the housing market will not recover until wages recover; more specifically, the relationship between median income & median home prices needs to be restored. Given that wages have been largely stagnant for over 10 years, we should all expect housing prices to continue falling – unless wages start rising first. I first became a homeowner in the mid-90s. Shortly therafter housing prices started rising more rapidly than wages. Wage growth stopped around 2000; while the housing market kept rocketing up.

    If the ratio between income & housing valuation is valid, the housing market should bottom out at late 90s valuations.

  • John O.

    I second bsimon’s points.

    We built our home in the early 1990’s. Since then, the county estimated market value for my house has been as high as 202% and is currently at roughly 165% of what we paid for it originally.

    Even with a biweekly option I took out several years ago which reduces the amount of interest paid over time and adds additional principal into each payment, my monthly mortgage is still far less than what I would be paying in rent on a 3 BR.

  • Kassie

    I’ve been mulling the idea of walking away from my house recently. Purchase price was $184k. At least $20k put into the home. Valued by the city at $151k. Actual value, if I wanted to sell probably about $135k. I could easily rent a place that is big enough for me for $800/month, which is more than $500/month savings. Plus I’d have cheaper utilities. Sure my credit would take a hit, but I’d be able to pay of my credit cards while I lived in my home for free waiting for foreclosure. The only two things keeping me there are 1) I really like my house and 2) sense of responsibility.

  • Kassie

    I take it all back. I’ve had some mail problems with the city and I missed my current housing assessment. They have my house at $136,500. I should just stop paying my mortgage now…

  • bob

    I’m a homeowner (more accurately, a mortgagee), and my house is still worth much more than I paid for it, but I often feel like I must have rocks in my head to continue my mortgagee status.

    Comparing the monthly cost of renting to the cost of a mortgage payment is an apples and oranges comparison.

    At the end of 20 years of paying rent at $1,000/mo, the renter would have laid out $240,000.

    At the end of 20 years of owning a $240,000 house, the mortgagee will have paid a total of approximately $320,000 in taxes, interest, principal and insurance,exclusive of the joys of home ownership, such as ice dams, yard upkeep, plumbing repairs, etc. These cost would add another several thousand dollars, if not more.

    It’s possible that the home will appreciate in value such that the mortgagee recovers his/her outlay, but we know there’s no guarantee on that.

    The renter takes no appreciation gamble, and has no upkeep obligations, only paying the cost of day to day housing, while maintaining the ability to move at the drop of a hat.

    Looked at in this way, I’m hard pressed to see the sense in home ownership.

    The idea of an apartment somewhere in the Southwest is becoming ever more alluring. But that means I’d have to try and sell my house in a market where the average non-foreclosure home is remaining on the market for more than a year.

  • Renae

    I think a lot of people still like the idea of owning a house, but realistically, don’t see it as a good investment. I watch my friends who have been buying houses lately and all their weekends are spent on home repairs and upgrades. I have other friends who are worried about losing their house, since layoffs. Owning a home seems like a lot of stress and I don’t plan on owning until I can afford to put 30% down and buy a house no more than 2x my income. Right now, my income is very low, so I wouldn’t get a very nice house, but I am okay waiting 10-20 years, so I only have to do it once and I don’t have to worry about it.

  • bsimon

    Kassie, thanks for sharing your personal situation. Kassie’s conundrum serves as a good example of the variables we all need to consider when making our housing choices.

    As it stands right now, Kassie is spending more on the house she’s in than on a generic 3 bedroom apartment, presumably offers a comparable lifestyle as her house, in terms of square footage. So… in the short term, is that $500/month savings worthwhile? Does the house offer $500/month of benefit that an apartment does not? (maybe space; maybe a sense of having a permanent home; maybe a garden; etc). But, in my opinion, Kassie also needs to factor in the long term. One thing that is often overlooked is that a 30 year mortgage at a fixed interest rate will cost roughly the same amount every month for the life of the loan (with variabililty for cost of insurance & property tax). So she knows that this year, renting would be cheaper. But what about in 5 years? 10?

    Note that whether she’s underwater or not didn’t enter into the equation. That’s irrelevant until she decides to sell.

    Obviously the calculations get more comlicated when there’s a significant change to one’s finances (i.e. job loss; significant health expenses or the like). But the basic equation of ‘should I rent or should I buy’ should consider the long term as well as the short term.

  • Bob Collins

    //should I rent or should I buy’ should consider the long term as well as the short term.

    I think this is a good example of the changing nature of living, however.

    It’s good advice, but is it practical advice in 2011?

    Can people REALLY factor in long-term anymore?

    There was a time when jobs lasted a relatively long time; people would go to work for a company, and retire from a company. Those days are gone.

    The career you chose a few years ago is obsolete now because of the rapid pace of technology.

    People’s marriages lasted. For the most part, those days are gone too.

    An illness now — especially coupled with a job loss — and you’re bankrupt.

    It’s one of the reasons why I wouldn’t be a young person today for anything. It’s utterly impossible to predict the future with any degree of accuracy.

  • vjacobsen

    Where the hell are you guys finding these huge cheap rentals that are just as big as your houses now, but would cost less per month in rent than you’re paying for your mortgage? When we first relocated to the Twin Cities in 2008, we had to settle for a special on a town home in Woodbury. 2 bedrooms, 1 1/2 baths, a teeny kitchen, no real place for a table to eat on, plus the place was so poorly insulated we had heating bills a couple of times that topped $200. All for $1050. OK, so yes, we pay $1300 per month now, but we have 4 bedrooms, 2 baths, twice the square footage, and a backyard to boot.

    I’ll take what we’ve got any day over renting a crappy apartment, even to save $200, thanks.

  • andy

    Having owned a home in Minneapolis for 5 years and since selling it to relocate to Chicago, I’ve rented an apartment for 2 years – so I can definitely see both sides here.

    Sadly, what I’ve deducted is that they’re going to get your money either way. In my experience it’s been nearly a perfect wash. I have as much money in the bank now as when I owned a home. True, I don’t have to pay for maintenance, but I also didn’t get the tax break I would have gotten with home ownership.

    That being said, I do plan on buying another house next spring, and I’m excited to do so. I miss having a garden, and strangely, I also miss (some) of the maintenance that goes along with home ownership. What stinks is the attempt at saving for the down payment. I was doing great until last week when I had to send a huge check to the Feds to cover my taxes (which would have been greatly reduced had I owned a home). You see, they get you either way.