No, climate change hasn’t killed homeownership – yet

Is the American Dream dead?
Between the tens of billions of dollars of damage from the two once-in-a-generation storms that battered the Southeast in October, and the spiraling costs of property insurance and taxes hitting millions of Americans all over the country, it might seem like climate change is the final nail in the coffin for homeownership.
More:Homeownership used to mean stable housing costs. That’s a thing of the past.
For now, plenty of Americans seem to want to give it a go. Despite all the headwinds stacked against it, the U.S. homeownership rate was basically unchanged in the third quarter, the Census Bureau said Tuesday. At 65.5%, it was right in line with the 20-year average of 66%.
Tara Sinclair, director of the Center for Economic Research at George Washington University, understands why owning a home is still a goal for many. For the long term, homeownership still likely makes more sense than renting for a lot of Americans, whether or not it feels that way right now, she said.
Pay less to protect your home: Best home insurance policies
“We are still in a weird time in terms of the pandemic shocks,” Sinclair said. “It is wild the number of things that hit us all at once.”
Everyone remembers the extremes of the 2020-2021 period when rock-bottom mortgage rates and a sense of fear of missing out pushed the homeownership rate to its highest in 12 years. But the inflationary snap back in the other direction has been just as severe, Sinclair said. Mortgage rates surged, home prices followed, and a period of intense apartment construction made renting a lot cheaper. Throughout much of this year, the cold hard math favored renting.
At the same time, natural disasters and other events nudged the insurance industry to start incorporating climate risk into its pricing models. In some areas, homeowners insurance premiums have nearly doubled over the past five years – and in others, there are no private-sector policies to be found.
Now, the decisions facing Americans in many areas may range from the existential – should I rebuild – to the mundane – can I afford the monthly bill?
But those calculations alone may not fully capture the choice between renting and owning, Sinclair said. For one thing, just finding a home to buy and getting a loan to finance it can be challenging. Home sales are at a 14-year low, and the scarcity of listings is likely to nudge purchase prices higher. That’s because it’s only people who must move who are buying and selling – and they are mostly in the higher segment of the market, not encumbered by a mortgage.
For decades, the American economy has steadily shifted more and more risk to the household level, Sinclair noted. One way to think about that is the 401(k) plans that replaced corporate pensions for many Americans, requiring them to set aside their own income and then manage a portfolio of investments. In the housing market, the corollary is encouraging more and more people to become homeowners, rather than leaving a lot of the risk, such as maintenance, to a landlord, she said.
Despite the costs and the challenges of homeownership, any time consumers think they can catch a break in terms of affordability, they try. In September, when mortgage rates touched their lowest point in nearly two years, mortgage applications rose for four straight weeks.
“What will happen once interest rates normalize to whatever they normalize to?” Sinclair said. “Will that result in people with low mortgage rates deciding to list their homes, freeing up a lot of supply? We’re just waiting to see, how much of this is a structural shift and how much is a temporary bottleneck from the pandemic.”