Successive housing booms have conditioned many Americans into thinking that house prices will always go up. Rather than being viewed as a useful asset that requires significant cost and upkeep, many people see houses the best way to get rich, buying a house and watching its value appreciate year after year. Unfortunately, price appreciation isn’t guaranteed. What goes up must come down, and when housing bubbles crash many homeowners suffer.
The financial crisis saw tens of millions of Americans owing more on their home mortgages than the houses were worth. Many gave up, mailing their keys in to their mortgage lenders and walking away. The financial hit to borrowers’ credit histories from walking away was immense but judged to be better than continuing to make payments on houses that were worth far less than their purchase prices. At one point nearly 29 percent of homeowners, nearly 15 million borrowers, were underwater on their mortgages.
While that number has decreased significantly, 5.4 percent of all mortgaged properties, nearly 3 million, are still underwater. That means that homeowners looking to sell those homes and move elsewhere would almost certainly lose money in trying to do so. That, in turn, continues to depress the number of homes for sale, with housing inventory down over 6 percent from a year ago.
That decreased inventory, along with rising demand thanks in large part to central bank monetary easing, has resulted in continued price increases that are starting to result in fewer home sales. Younger generations, in particular, are finding it hard to purchase houses, as increased prices mean larger down payments and higher monthly payments than most millennials are able to afford. That doesn’t bode well for the strength of the housing market in the future.