The housing decline that started in 2008 is having a profound impact on families across the country. Many who are in their first homes are stuck causing them to delay starting families or even moving for job opportunities.
“We don’t see the equity anymore, it’s not there anymore,” says Washington state real estate agent Teri Herrera.
According to Zillow since 2006 median home prices in the U.S. have dropped 35 percent. It’s left millions of American homeowners underwater, a term which means they owe more than their house is worth. How bad is it? According to a Core Logic study released last week, 10.9 million home mortgages are in negative territory. An additional 2.4 million have less than 5 percent equity. In all, 27.5 percent of homeowners hold negative or near-negative mortgages.
Many are first-time home buyers like Georgia Wall-Schoonover who is herself a real estate agent in Bellevue, Washington. She and her husband bought a two bedroom condo in 2006. The plan was to sell in a few years, get something bigger and start having children. Their home is worth about half of what they paid for it. “It means delaying any kind of growing of the family,” Wall-Schoonover says, “all the things we envisioned won’t happen for awhile.”
Experts say the ripple affect includes an uptick in remodels as people look to get more livable space in their existing home. There’s also been a fundamental shift in the way people view the starter home.
Traditionally, first-time buyers stay in that home between 3-5 years. Now, that’s being extended to 7-9 years which is the median stay in a home for all buyers. Gone are the days when people can expect strong appreciation. Forecasts call for very slow price growth over the next several years.
The starter home is no longer a small, 2 bedroom house. New buyers are looking for something larger where they can stay for a decade or longer. Tennis pro Chad Smith of Woodinville, Washington is engaged and wants a family home right away. “If we’re going to be there 10 years, we want to be comfortable, we want to raise a family,” says Smith."
Agents say the smaller homes are much harder to sell now. Instead of young couples, buyers are typically single professionals and empty-nesters who are downsizing. At least there is some good news.
The National Association of Realtors reports existing home sales increased in August 7.7 percent to a seasonally adjusted rate of 5.03 million homes. Foreclosures still make up a significant portion of the sales which is keeping prices from rising much.
Phil Harland, president of the Washington State Realtors Association is optimistic. “I think the concept of the starter home, the beginning of the property ladder is still very much intact,” Harland says. “I think where we went awry a little bit is we were thinking of short-term gain.”