As the first generation to be raised on the internet enters into early adulthood, many soon-to-be-homebuyers may struggle to deal with the cumbersome details and timeliness of the home buying process. The real estate industry has largely resisted the need to make individual transactions internet-friendly, and, as a result, those of us who are accustomed to completing most transactions online (even complex ones) will find that home buying isn’t as much fun as it sounds.
Many people in their late 20s (my own age) suffer from the “I’ll find it online” syndrome because most everything we need, even for relatively difficult transactions, is amazingly accessible via the internet. When I need a pair of shoes or a new computer, I go online, flex my comparison-shopping skills for 30 minutes, then make my decision. If the site offers student pricing, I’ll take advantage of that. When I apply (and re-apply) for my student loans, the process isn’t much different, despite the fact that I’m now dealing with tens of thousands of dollars instead of only a few. My health insurance works the same as well. I can be covered and enrolled in under 20 minutes.
To a large extent, vendors and service providers have worked to increase e-commerce by maximizing the availability of discounts, variable payment options, and product selection while minimizing shopping time, onerous paperwork, and human interaction.
But despite limited attempts to move the real estate industry into a digital age in the form of property search engines, it is still largely a pen and paper, face-to-face process. And that’s where the problems arise. Not that there is anything inherently bad about this retro situation (and some would argue that sticking with the paper thing is a public good), but it presents the modern online consumer with a daunting task that is unique in an environment of otherwise brief online transactional expectations.
If you’re like me and looking for a house, you’re probably happily cruising sites like Zillow, Trulia, or Redfin to see what properties fit your sacred personal selection criteria. Do you want a patio? Or a yard? Do you need an updated kitchen? His and her sinks? It’s deceptively easy to find properties with all the right features on these aggregate search engine sites. But “bringing it home,” so to speak, is much a different game.
Of course, you wouldn’t know this from the “reality” television shows that have blossomed around the home buyers journey. Home and Garden Television (HGTV) has capitalized on this theme with shows like House Hunters (and House Hunters International), Property Virgins, and My First Place. In these shows, the buyers are taken around a few properties by a shiny real estate agent, then get to decide on which place is best. After putting up an offer, the next scene is usually “two months later” and characterized with a flow of verbal gush over how much the homeowners love their new home, how well everything worked out, how happy they are now that they moved in. The viewer is satisfied that this particular iteration of the American dream has been met with success and new houses are the answers to all of life’s problems.
What it conveniently does not show are the lawyers, the real estate agents, the loan application decisions (then the loan applications themselves), the bankers, the appraisers, the inspectors, and all that other paper work you know you will have to fill out. If you’re in the 99%, even determining which federal housing program to apply for is itself a major task. Freddie Mac or Fannie Mae? FHA loans? Rural Housing programs? There are still more options and each specializes in a particular profile within the home buyer market. I’m guessing the meetings with real estate professionals to fill out mortgage applications don’t make for compelling television.
But all these painfully boring (but necessary) steps are precisely why purchasing a home is more difficult than ever for our 20s-30s demographic. The very things you need to buy a place of your own are becoming increasingly absent in the lives of young people: A decent amount of savings for a down payment; a steady stream of income to qualify for and make payments on a mortgage; and perhaps most importantly, a lot of time to deal with all the necessary transactional procedures that go into the complex negotiation, financing, and closing processes.
This trend is concerning not only at an individual consumer level, but also at a broader economic one. Recent reports show rental vacancies are at a 10 year low. Presuming some of these renters are renting in lieu of buying (and waiting for housing prices to bottom out), the market still faces a sub-optimal purchase rate wherein money that would go to into property ownership is staying on the sidelines in the form of rental payments. This is concerning because property ownership is one of the cornerstones of our economy (and most western capitalist economies). Hernando de Soto proved this point in 2000 by conducting in depth empircal research into the property laws amongst a host of nations.
One of his main findings was that, in nations whose property and title laws were either overly-bureaucratic or too time-intensive, people were significantly less likely to pursue home ownership. Extrapolating this insight to the minutiae of the modern home-buying process in the U.S., it can be argued that the failure of the real estate industry to make its products and services transparent and more online accessible may contribute to people staying out of the market. With the added expectations of internet-accessibility in the next generation of young adults, this effect may only be exacerbated.
Personally, I am overwhelmed trying to map out the whole home buying endeavor - and I know others who share the same sentiment. Finding a neighborhood I liked (and could afford) was hard enough, especially in the urban centers. But trying to maximize my money’s value in the housing market through federal, state, and local incentives while simultaneously making sure the housing loans I’ve applied for will support such decisions is a lot more than I bargained for.
I’m still a house hunter, but not nearly as well-equipped as I had first thought.
Photo Credit: Wikimedia Commons