housing

Lasting Effect of Great Recession Is Decline in Homeownership but Technology May Be Able to Help

We are now ten years out from the Great Financial Crisis. I won’t go into detail about how the failure of many American mortgages rocked the world’s economy. There has been plenty written about that already. Plus, must of us were there and felt the effects first hand. Instead, I want to take a look at how one of the biggest consequences of the downturn, the decrease in American homeownership, is still affecting us. Even with the regulations that were set in place and the aggressive monetary policy moves that have been able to pull the economy back from the dark place it was in at this time in 2008, this problem doesn’t seem likely to go away. That is unless a new generation of innovative financial and technological problems can help bring home ownership back to its former glory.

The St. Louis Federal Reserve Bank estimates that as many at 10 million mortgage borrowers may have lost their homes in the aftermath of the crisis. That doesn’t take into account the number of homeowners that were lucky enough to complete a “short sale” where the bank let owners walk away from a house, minus any equity they might have had, when a buyer was willing to make an acceptable offer. This left a lot of Americans with no homes and little to no credit for a purchase down the road. Also, a number of homeowners fought to hold on to their houses even though they were now worth significantly less than their mortgage on it.

Who bought these foreclosed homes? Anyone with cash. Since you can’t buy a foreclosed home with a mortgage, only wealthy individuals and corporations were able to benefit from the underpriced assets flooding the market. One of the biggest companies to do this was Blackstone, the private equity group. they partnered with Dallas-based Riverstone Residential Group and Tempe-based Treehouse Group to form a new company, called Invitation Homes, to manage its single-family rental business.

To help keep the country solvent the Federal Reserve has been, in one way or another, creating money in order to keep the interests rates low. But we seem to be entering the end of that period. As the new economy has tended to shine on a number of prosperous cities a race towards these areas has also created housing demand. This demand has driven prices in many major metropolitan areas out of reach for most wage earners.

This leaves us at where we are today. A recent study just came out from the Census Bureau that shows rates of homeownership in the country have only recently started to see an increase.home ownership rates

Interestingly, this didn’t only affect the youngest generations. Almost every age group has seen this same slow decline with a recent uptick.home ownership rates

Every indication, including the economic factors and our Federal Reserve Chair, is pointing to an increase in the interest rates. This will push many houses even further out of reach for many aspiring homeowners. So, besides building more houses, what can be done to help get Americans back as homeowners? This is where technology comes in.

New ownership solutions like Unmortgage are popping up. These allow for a combination of mortgage and lease. It creates a situation where a homeowner can agree to the purchase of part of the equity in a house, giving them the option to buy more later on. This will get many people over the downpayment hurdle that has kept them from buying. Earlier this year a company called Divvy proposed something similar, allowing renters to earn “equity credits” as they rent and then eventually become borrowers rather than lessees.

Some have said that owning a home isn’t the best way to build wealth. But, that is only part of the equation. Homeownership has been shown to influence civic and political behavior and is a way to force savings for the future while enjoying an asset. If the economics are not on the side of getting back to where we once were as far as home ownership, then many innovative new property companies can help find new way for people to turn their house into a home.

Propmodo is a global multimedia effort to explore how emerging technologies affect our built environment.

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