Do Freelancers Pose a Threat to the Housing Market?

Realty

After a period of improvement, the National Association of Realtors announced that the sales of previously built homes dropped in August. The association has placed the cause for this decrease on the shrinking supply of foreclosed properties, which many investors have been buying in cash. As a result, the organization has suggested that this setback could open up the market to first-time homeowners, who may have been shut out by more experienced investors when bidding on foreclosed homes. 

However, data on the United State’s employment trends raises questions and doubts about many Americans’ ability to buy a house at normal market value. Could the job market’s increasing number of freelancing jobs be preventing potential homeowners from buying properties of their own?

In a report released on Monday, September 22, the National Association of Realtors reported that existing homes sales fell 1.8% in August compared to July, reaching a seasonally adjusted rate of 5.05 million. This number is down 5.3% from the previous year. And because the number of foreclosed houses has been significantly depleted, high home prices and reduced access to credit will most likely make it difficult for many people to consider buying a house.

There are a number of reasons why the young adults who make up a considerable percentage of first-time buyers would want to wait before buying a house: for example, many are already juggling student loan debt, making it impossible to successfully take out a loan as lenders demand higher credit scores and flawless credit profiles in the wake of the housing crisis. Additionally, many are likely held back by the tight job market: while employment rates are steadily improving, more and more people are turning to freelance work to make ends meet. Freelancing, which a survey from Freelancer’s Desk and Elance-O Desk defined as “individuals who have engaged in supplemental, temporary, or project- or contract-based work in the past 12 months,” is now practiced by around 53 million Americans, as much as 34% of the U.S. workforce.

The issue with freelancing is not the amount of money these employees make: it is their stability. While eight out of 10 freelance workers report that they make the same amount they did in a more traditional role, 45% report that they make more money than they did previously. However, as mentioned in the definition above, freelancing is characterized by its “supplemental, temporary, or project-or-contract-based” nature. This likely means that fewer people are going to feel able to purchase a house; after all, how can you commit to a mortgage if you don’t know if your company is going to renew your contract at the end of the year? And to further complicate matters, it doesn’t seem likely that this trend will change: not only do 83% of CEOs say that they plan to increase their number of freelance employees, but 97% of freelancers report being satisfied or extremely satisfied with their positions. The odds that the job market will become stable enough to promote home ownership therefore seems improbable.

Moreover, the price of existing homes may also serve as a barrier: the median price for all previously-built homes was $219,800 in August, 4.8% higher than in 2013. This marks the 30th month in a row of year-over year price gains, suggesting that existing home prices will only continue to rise. Combined with the cost of repairs and remodeling, obtaining a housing loan seems like more risk than it is worth. For this reason, the existing housing market is facing a considerable threat from new home construction. Newly built custom homes have been shown to be 17% more energy efficient due to modern building codes, reducing a first-time homeowner’s monthly budget significantly, while customized features could also contribute to their savings. But will young workers want to make the plunge? With the number of freelancers expected to exceed 70 million by 2020, comprising 40% of the U.S. workforce, we have no choice but to wait and see.

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