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One only needs to go back in time a little over ten years, to the Great Recession of 2008, to understand the relationship between the health of and machinations about the residential real estate market, on the one hand, and the overall health of the domestic economy, on the other.
Which brings us to the existential question: ‘What’s the value of home?’ Business reporters, market-watchers, and economic analysts offer their commentary about the housing market as if all buyers, all sellers, and all occupiers view ‘home’ in the same way.
Yet for the Baby Boomers who set in motion the great economic expansion of the 20th Century, co-living could not be more anathema to their conception of home. Millennials and the generation that followed would equally shun—and by-and-large have—a single-family detached Cape Cod with a white picket fence in the far flung, oh-so-boring, and difficult to navigate exurbs. Understanding this paradigm shift in ‘what’s the value of home’ through the generational cohorts may offer some insights into what’s been happening in the residential market for the decade following the mortgage meltdown.
Since the initial emergence of an American middle class, about halfway through the last century (as part of and integral to the United States’ post-WWII manufacturing boom), owning a home has been the hallmark of economic independence and financial success, as well as the principal indicia of wealth creation for this rising middle class. Housing values could be consistently counted on to rise an average of 3% per year, decade after decade.
That was true even after accounting for market disruptions like the Savings & Loan Crisis of the 1980’s, when a variety of factors contributed to overheated residential markets, and grossly overvalued houses serving as collateral for mortgage debt. This became the consumer banking industry’s undoing, requiring a federal bailout.
Sometime in the mid-1980’s, however, American consumers bought into what I’ve dubbed the ‘Commodification of Home.’ Homeowners went from being “investors in blue chip stocks” to acting like day-traders in how they viewed ‘the value of home’; positioning their personal residences, first and foremost, as mere tools for precipitous wealth creation.
The personalization and enjoyment of their ‘castles’ fell to a distant second as a priority, in order to maintain a homogenized representation of ‘home’ appealing to a majority of prospective home buyers. Homeowners became, in essence, itinerant home flippers: buying a home to live in for just a few years; making targeted improvements during their brief tenure (even something as modest as painting the inside and out); then moving on to the next above-market-appreciation opportunity.
‘Home’ was transformed from a homeowner’s sanctuary and expression of personal taste, to a widget, in an effort to make their home an ‘appeal-to-as-many-people-as-possible’ commodity, ready to be marketed to the next buyer. Additionally, homes became their owner’s personal piggy banks, with gains in equity being monetized as frequently as possible to provide operating capital for improvements viewed as critical to optimizing the disposition price. The ‘value of home,’ far from living up to its reputation as the owner’s castle, became diluted substantially, to a ‘anyone can do it,’ get-rich quick scheme.
The general public is treated to monthly statistics on things like housing starts; sales in the secondary market; changes in the median price and size of houses; and the rate of home appreciation. Outside of the state of the residential markets, as indicated by such monthly statistics, consumers—whether current or prospective homeowners—track mortgage rates and, more-broadly, federal monetary policy. This includes the deliberations of and decisions made public by the Federal Open Markets Committee (FOMC) of the Federal Reserve regarding ‘the Fed funds rate.’ Most-recently, the Fed funds rate was cut by another one quarter of one percent on October 30, 2019.
While checking these closely watched barometers of the overall health of the residential market may be prudent, it may not be nearly as valuable as understanding the relationship consumers of residential structures and units have with the places in which they live. By better understanding ‘What’s the Value of Home’ in the eye of the beholder, we may be able to offer much better insights into what lies ahead in the residential markets.