To Buy or Not to Buy?

Homeownership is often celebrated as the dream of every American household. Nevertheless, only 60% to 70% of households own their homes in various parts of the country. According to the latest data from the Census Bureau, the Midwest had the highest homeownership rate (70.3%) in the first quarter of 2023, followed by the South (67.3%), Northeast (62.7%) and West (61.9%).

The 2021 American Housing Survey provided a demographic profile of owners and renters along with the types of housing and neighborhoods they choose. The vast majority (84.3%) of owners lived in a detached structure and selected their neighborhood based upon the quality of the schools. Of the 5.4 million homeowners who were planning to move during the next year, surprising number of them (38.3%) indicated they were planning to move to a different city.

Renters were more likely (61.5%) to live in a multi-family building with two or more apartments than rent a single-family house (26.7%). Renters selected their neighborhoods based upon good public transportation and quality schools. Of the 14.4 million renters planning to move within the next year, a similar percentage (39.3%) intended to move to a different city.

Differentiating Factors

Education and income played a significant role in differentiating homeowners from renters. A larger share of homeowners (41.6%) than renters (28.7%) had earned a bachelor’s degree or higher. The median annual household income of homeowner’s was $78,000 compared to the $41,000 median income of renters. The median square footage of an owner’s home was 1,900 square feet compared to 1,400 square feet of a renter’s single-family home. Despite living in larger spaces, the median monthly total costs for housing, including utilities was $1,200 per month for homeowners and $1,184 for renters.

For the past 50 years, experts have touted the same mantra: a bachelor’s degree is the key to higher incomes and stable employment opportunities. However, as automation and artificial intelligence alter the dynamic of many traditional white-collar workplaces, especially software engineering, trade schools are becoming a better option for many young adults to earn a middle-class lifestyle. For the first time in decades the employment opportunities for trade school graduates are exceeding those of many college graduates.

Obviously, age was a significant factor in the housing data. Approximately 85% of people age 25 years and younger were renters. The distribution of owners and renters reached 50% around the age of 38 years, which is currently the median age of most first-time home buyers. By the age of 65 years 78% were homeowners and 22% were renters. Data also revealed that approximately 40% of these homeowners were mortgage-free.

Costs of Ownership

Many of the nation’s 128.5 million occupied houses needed repairs during 2021. The majority of the repairs were related to water leakage from outside the home. Holes in the structure, cracks in the foundation, mold, and plumbing problems were deemed necessary. Over 10% of home were infested with mice, rats or cockroaches.

Approximately 49 million (60%) homeowners spent a median of $5,000 on home improvements. Data indicates that the longer owners lived in their homes the greater the tendency to invest in new HVAC systems, new roofs, kitchen remodeling, flooring, bathroom remodeling, and replacement of doors and windows. Almost 40% of the 135 million home improvement projects were do-it-yourself (DIY) projects performed by the owners.

Economic Impact

Regardless of homeownership percentages in a given community, activities related to housing involve almost all industry sectors. From the development of land to construct new homes, mobile and manufactured home parks, condominiums, and apartment buildings to the resale of existing housing units there are numerous industries, professions and government agencies involved with every transaction. Both homeowners and renters purchase household appliances, electronics, gardening supplies, furnishings and other necessities, especially when they move to another residence.

The housing industry represents roughly 18% of our nations GDP and consumes nearly one-third of household spending. Since it is sensitive to interest rates and consumer sentiment the housing industry provides an accurate reflection of regional and national economic conditions as well as an indicator of future economic trends.

Homebuilding activity often slows ahead of economic recessions. Recent data revealed that housing starts in April 2025 declined 1.7% year-over-year, while building permits fell 3.2%. More disturbing was the fact that one out of seven (14.3%) home purchase agreements were cancelled during the same month, which suggests financial uncertainty among prospective homebuyers.

Housing also exerts a significant impact on inflation. Shelter costs account for one-third of the Consumer Price Index. Despite the recent decrease in inflation from 9.0% to 2.7%, shelter costs rose 4.3%, which was twice the CPI. When the costs for shelter exceed 33% of household income it reduces discretionary consumer spending.

Housing Affordability

Most long-term homeowners celebrated the 50% increase in the values of their homes during the past five years. This once-in-a-lifetime surge in home values was caused by the pandemic-era dynamics: huge economic stimulus and historically low interest rates, which increased demand at the time when supply-chain disruptions created a drastically reduced supply of materials. This unprecedented confluence of events increased costs for construction and resulted in bidding wars for available houses.

The median home sale price in 2025 increased 27% from 2020. Consequently, the median age of first-time homebuyers increased to 38 years. As 30-year fixed mortgage interest rates climbed from a low of 3% in 2021 to 7% in 2025, along with a rise in homeowner insurance rates and property taxes, monthly mortgage payments far outpaced household income growth. Unlike the extremely lax lending standards that precipitated the subprime mortgage crisis in 2008, risky mortgage products are far less common. Although tighter lending standards are better for the nation’s economic health, borrowers must meet more stringent criteria to qualify for a mortgage.

Since housing prices historically track income growth, the “affordability gap” has reduced the rise in home prices in affluent communities and actually caused home prices to drop in areas where housing supply exceeds demand, such as Texas and Florida. Homebuilders are offering incentives to sell their inventory. At the same time, the interest rate on 30-year fixed mortgages has dropped to 6.25%, which is close to the historical average, and household incomes are increasing at a greater rate than inflation.

Prosperity or Adversity

The lowering of the target interest rate and quantitative easing by the Federal Reserve in response to a reduction of the Consumer Price Index (inflation) seem to be favorable signs for prospective homebuyers. Unfortunately, the conditions that cause home prices to decline are weakening of the economy, increased unemployment, and excess home construction.

The adage, “Be careful what you wish for” is truly important today. People who wish for 3% mortgage interest rates forget the dire economic circumstances that precipitated those unprecedented lower interest rates. Regardless of low interest rates, people will not purchase a new home when they are worried about losing their job.

Therefore, we shouldn’t wish for lower interest rates, we should wish for economic prosperity. A thriving economy will boost consumer confidence, increase household incomes, and close the affordability gap.

Although there has been a recent surge in media attention related to Artificial Intelligence and the attendant concerns that AI will eliminate a significant number of jobs, most of the job losses seem to be in the technology sector. Conversely, there has been an increase the need for data centers and energy production, which creates a demand for traditionally middle-class jobs: electricians, plumbers, welders, heavy equipment operators, autoworkers, HVAC technicians, and construction workers.

It seems the primary concern in going forward will lie in the ability of Americans to manage, and eventually reduce, government and consumer debt. The current administration believes, as most politicians do, that we can “grow ourselves of out of our debt burden.” The politician’s goal is always directed toward improving the nation’s debt-to-GDP ratio in the same manner a prospective homebuyer aspires to improve their debt-to-income ratio in order to qualify for a loan. A more favorable debt-to-GDP ratio improves the government’s ability to borrow money through the sale of U.S. Treasury bonds.

Increasing income is always preferable to the austerity required to reduce debt. The inherent problem with debt is that too many politicians and consumers don’t differentiate between good debt and bad debt.  Good debt can be the key to economic prosperity while bad debt often leads to financial adversity.

Conclusion

“To buy, or not to buy: that is the question.” Given the profound impact homeownership has on the potential to increase a household’s net worth and promote the creation of generational wealth, paraphrasing Hamlet’s existential contemplation about life and death seems appropriate for many households.

It seems the ideal way for the markets to shrink the affordability gap will be for housing prices to remain stable to preserve homeowner equity while household incomes gradually increase. Improving the financial literacy of younger households will enable them to make a commitment to living below their means while they create the strong financial foundation necessary to become responsible homeowners.

Each household should determine: why owning a home is important for them, what type of home is necessary to enhance their quality of life, and where that home should be located. The answers to these important questions will provide the motivation that young households need to endure the sacrifices necessary to make homeownership inevitable.

Engaging the services of trusted advisors – financial, real estate, and mortgage – will enable prospective homebuyers to become financially prepared to purchase the right home, in the right community, and at the right time for them – regardless of interest rates and changes in macro-economic conditions.

Our team at Wessberg Luxury Properties Southlake is ready, willing, and able to assist luxury home sellers market their properties to affluent home buyers who a seeking an exceptional home for their dreams. Among his many designations, George has earned the Accredited Luxury Home Specialist (ALHS) and the Certified Luxury Home Marketing Specialist (CLHMS-Guild) designations.