Homeownership Growing in Only 16% of Largest U.S. Cities

What are the top three factors driving homeownership growth in certain cities?

Among other things, affordability, employment opportunities, and wealth creation all affect how many people seek to become homeowners.

We regularly see a push and pull between the decision to rent or buy. Affordability often dictates which side of the fence someone ends up on, with many would-be homeowners renting for the time being, hoping to one day be able to purchase a home. Contributing to affordability is the supply of available homes for sale and the number of people looking for homes to buy.

Secondly, as jobs become more prevalent in a city and income levels rise, more people will be encouraged to relocate. Jobs provide a sense of purpose and achievement. They also provide the means by which we afford our lifestyles.

A diversity in the economic base, or a variety of different types of jobs in a city, also provides protection for workers who may lose their jobs in the future due to changing technologies, outsourcing, or even a personal decision to change careers. If everyone in town worked for the same company at the same location and there was a fire that burned down the building, the entire city would suddenly be unemployed, and the city would be at risk of becoming a ghost town. On the other hand, if a city has a wide variety of employment opportunities in different industries, then, as the world changes, and even as we change, a person can more readily find a new job or a new career without having to relocate. This assurance can lead to greater levels of homeownership over renting.  

Third, and regardless of location, is the realization that real estate is a way for even everyday people to build wealth. When you pay off your mortgage loan, when you make improvements, when the economy improves and people spend more money, or when inflation leads prices to go up, the value of your property increases. This appreciation increases the amount of equity or built-up ownership value in your home. Equity has a financial value that can be borrowed against and used for things like buying a larger home, making repairs on an existing home, paying off high-interest debt, taking a vacation, or even assisting in funding your retirement.

How do economic conditions, such as interest rates and job markets, impact homeownership trends?

Employment and income levels are among the most significant drivers of demand, not only for housing in general but for specific types of housing. People who feel secure in their jobs are more likely to buy a home than people who feel their employment is uncertain or short-lived.

Similarly, income matters. First, people who earn higher salaries are better positioned to compete with other homebuyers. When two or more parties want the same house, the property goes to the highest bidder. This is less likely to happen with rental properties, which usually take a first-come, first-served approach. Second, those who earn higher wages can more readily afford the additional costs of homeownership. Third, having more disposable income makes it easier to afford a home even when interest rates (and as a result, monthly mortgage loan payments) are higher.

That being said, there are also other important factors besides the economy that are worth mentioning. For example, property tax rates and neighborhood crime rates can discourage would-be homebuyers. Even the aging of the population and climate can affect homeownership rates and trends.

Older individuals often choose to relocate to warmer climates as they retire, meaning that Northern cities are losing homeowners to Southern Sun Belt cities. With the rise and proliferation of remote employment, we’re also seeing people of working age de-emphasizing proximity to an employer when deciding where to live, instead opting to live in a neighborhood where they’ll be the happiest.

What challenges do first-time homebuyers face in rapidly growing housing markets?

Where there is high demand for the existing housing stock, prospective new homeowners may feel pressured to act quickly to avoid losing out on a great property. They may also feel pressure to pay a higher price or settle for something less than what they originally had in mind, such as a smaller home, something further away, or a place in need of repairs.

This can be particularly challenging for first-time homebuyers. Not only are they often eager to find something and anxious about the process, but they also face real financial challenges. Current homeowners often rely on the proceeds from their old home to purchase, or at least afford, the down payment on a new home. First-time homebuyers do not have this luxury and must save up to afford a down payment. Not only that, but there are other expenses, aside from the purchase price, known as closing costs, that need to be accounted for. Fortunately, there are a number of programs to assist future homeowners, particularly first-time homebuyers.

How does an increase in homeownership affect local economies and communities?

When people move to a new city, whether they live in an apartment or a house, they tend to bring their families with them. These individuals and families then need various services to support their way of life. They’ll need things like grocery stores, restaurants, schools, houses of worship, public services such as fire and police protection, and entertainment. Homeowners are also likely to shop at home improvement stores and hire contractors, whether to paint a wall, build a fence, or repair a plumbing system.

All of these services generate jobs, which further fuel the economy. Retailers, teachers, police officers, contractors, and others also need grocery stores, restaurants, schools, and entertainment. Not only that, but they also need a place to live, which means more housing. This can create a cycle of economic growth.

Homeowners are also traditionally thought to have greater pride in their communities. While many renters care deeply about their town, those who plan to stick around for the long term are more likely to take that extra step, such as volunteering, making their voices heard at town council meetings, or starting a neighborhood watch.

Are there any long-term risks associated with rapid homeownership growth?

With rapid growth in the rate of homeownership, we would expect to see prices increasing, making properties less affordable, especially for first-time homebuyers. This is also likely to disproportionately affect younger people who are likely to have less money saved up. At the same time, it can financially benefit existing homeowners. As prices appreciate, existing homeowners can take advantage of higher levels of equity in their homes.

While prices may increase at first, rapid appreciation may not be sustainable. If prices come back down too quickly, it may cause some people to panic, fearing that an economic crash is imminent. Those looking to borrow against their equity may suddenly qualify for less credit or a lower loan, while those looking to apply their equity towards the purchase of a new home may likewise find that they have less available than they had assumed.

What advice would you give to renters looking to transition to homeownership in competitive markets?

Look into first-time homebuyer programs. These may help to reduce the down payment you’re required to make or even provide direct financial assistance to help you afford a down payment. These programs can also reduce your interest rate and help pay for closing costs. Many programs include a homebuyer or homeownership course. Even if you’re not required to attend one of these courses, they can be educational, helping you to understand all that’s involved in homeownership.

It’s also worth noting that the definition of first-time homebuyer is flexible, and even if you’ve owned a home in the past or currently own a home, in certain situations, you may still be eligible for first-time homebuyer benefits.

Also, create a budget and put more money aside than you think you’ll need. When it comes to budgeting, you can’t simply replace your current rent with a mortgage payment. Homeownership comes with costs that tenants don’t have to pay or that are included in their rent. For example, landlords pay for property taxes using rental income from tenants, but homeowners have to pay property taxes themselves. 

There is also property insurance, along with fire, flood, and earthquake insurance, depending on where you live, along with utilities that tenants generally don’t pay for, such as water and trash collection. Homeowners are also responsible for the repairs and maintenance of their property. When you own a home, you can’t call your landlord to repair a leaky sink or to replace the refrigerator. 

Therefore, it’s important to put aside money every month into a savings account. Building up a cash reserve will help cover both minor repairs like broken windows as well as major expenses such as repairing a roof, mold remediation, or, more optimistically, redesigning your kitchen.

The US Department of Housing and Urban Development, or HUD for short, recommends that housing expenses be limited to no more than 30% of a person’s gross income. While this may not always be possible, especially in particularly high-cost-of-living locations, the amount of money you spend on housing will directly affect the lifestyle you can live. After you pay income taxes, your mortgage loan, and utilities, whatever you have left over has to cover all your non-housing expenses like a car, gas to put in your car, auto insurance, health insurance, retirement savings, travel, clothing, entertainment, and of course… food.  

What are the top three factors driving homeownership growth in certain cities?

Without knowing which certain cities, it is a bit difficult to provide the top three factors. Some factors, such as interest rates, impact all cities, while other factors, such as population/employment growth, will impact different cities, resulting in higher prices because the demand of the growth likely outweighs supply. The key thing is segmentation, which people are looking for what type of lifestyle? 

If they’re looking for affordability, the Midwest is extremely affordable compared to coastal areas. If they’re looking for good schools, low crime rates, recreational opportunities, or other quality of life aspects, then the factors change. The point is that it is extremely difficult to come up with three universal homeownership growth factors at the local level.

How do economic conditions, such as interest rates and job markets, impact homeownership trends?

Lower interest rates reduce the cost of borrowing, from individuals aiming to get mortgages to developers borrowing money to develop. Higher rates tend to make people sit tight, as does economic uncertainty, like we currently have. 

Right now, economic uncertainty is likely a greater factor given the uncertainty of tariffs, implications for businesses, and the daily fluctuations in markets and policies. So, employers are less likely to hire for the near future due to this uncertainty, and the Fed is unlikely to lower rates until later in the year. All of these factors indicate that homeownership might not change noticeably until there is a bit more certainty.

What challenges do first-time homebuyers face in rapidly growing housing markets?

High prices and limited inventory, coupled with investor competition in southern/metropolitan areas, mean that, unless they have enough cash to purchase a home outright, they may be priced out of the market. Additionally, housing price appreciation has outpaced income/wage growth consistently for the past 40 years, so today’s wages buy less house than 40 years ago. 

How does an increase in homeownership affect local economies and communities?

Ownership tends to correspond with longer housing tenure, which can lead to neighborhood stability and greater community engagement.

Are there any long-term risks associated with rapid homeownership growth?

As we saw during the Great Recession, rapid growth leads to the creation of housing bubbles. If you get a mortgage for a home as that bubble is growing, you may end up underwater and owing more money than the house is worth after that bubble bursts. The long-term risk, then, is whether you can pay the money for a mortgage on a home that is no longer valued as highly, but if you hold on to it long enough, then maybe the value rebounds by the time you’re willing to sell it.

What advice would you give to renters looking to transition to homeownership in competitive markets?

Save as much money as possible and have great credit scores, since you may need to pay in cash and well over the listing price to land the house that you ultimately want to buy.