Apartment Life vs. Homeownership

Jason Merrill

By Jason Merrill | June 21, 2018

When the band Ivy released its “Apartment Life” album in October 1997, I had just finished my freshman year in college and was starting a two-year adventure living in Eastern Europe. While I have never considered myself a strong supporter of the indie pop musical genre, to me, that album was symbolic of a potential turning point in the American ethos, which had long been dominated by the baby boomer vision of the American Dream. That vision tended to be family-centric and included homeownership as an ideal form of living. While Ivy’s music album may seem obscure to some, the popular TV show “Friends” exhibited a similar ethos and predated Ivy’s album by a few years. That show glamorized the apartment living lifestyle, which perhaps focuses more on friends than family and more on renting than homeownership. How successful were these pop culture items in decreasing the desire for homeownership?

This week’s chart looks at housing data over the past 15 years across a few different housing indices. Since the financial crisis, household formations, on average, have slowly trended up despite the volatility in the numbers over the past five years. Over the same time period, mortgage applications seemed to flatline at a local low from 2010 to 2014, but have since shown signs of life.

Also included in this week’s chart is the Housing Affordability Index. Over the past 15 years, this index has been range-bound between 100 and 200, and it currently sits at a value of 158. As such, the affordability of buying a home in the current economic environment could be considered fair. For several years after the crisis, the availability of mortgage credit remained tight, as underwriting standards were very strong to compensate for the underwriting failures of the housing bubble. However, mortgage credit availability has been improving over the past couple years, with high loan-to-value and non-qualified mortgage loans becoming more common. Since 2014, mortgage applications have trended up while the Housing Affordability Index has remained roughly flat over the same time period.

 

Key Takeaway

The data supports the notion that new household formation continues to grow. Mortgage credit continues to become more available and housing affordability is in the fair range. Mortgage applications flatlined at a local low for a period of time after the crisis. However, mortgage applications since 2014 have been trending higher, suggesting that the dream of homeownership is alive and well.



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The material provided here is for informational use only. The views expressed are those of the author, and do not necessarily reflect the views of Penn Mutual Asset Management.

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