Is renting the way to go in 2017?

Though the U.S. economy has appeared to have rebounded from the “Great Recession”, homeownership rates have continued to decline since their record highs in 2005. Despite increased consumer confidence across the country, fewer Americans own houses today than ever before. How could this be the case? As it turns out, the answer seems to lie in Americans’ recent obsession with renting.

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The Housing Aspirations Report conducted by Zillow.com found that 70 percent of Americans across the country find high down payment costs to be the number one obstacle in becoming a homeowner. Ever since the recession, banks have become much more cautious lending money out to the public. With home prices reaching new highs in many markets, a typical 20% down payment on an average home costs more than two-thirds the national median annual household income of $56,000. While there are other low-payment options, like the government-issued Federal Housing Administration loans, which only require 3.5 percent down, they require additional mortgage insurance payments that prove to add up. In addition, the report found that mortgage approval and job security have also proved to be barriers to entry into homeownership. Their survey found that just over half of renters are hindered by qualifying for a mortgage or loan, while 30 percent of renters are restricted by their job security.

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Because of the new hurdles into homeownership, renting fees have proven to be relatively inelastic in recent years. The Median Asking price for Vacant for Rent Units has nearly doubled since 2001 as reflected in the included graph. Meanwhile, the vacancy rate has steadily dropped to about 7 percent from 11 percent over the last 7 years. Thus, as renting has reached record highs, it has simultaneously become more popular. In a survey conducted last September by Freddie Mac, 60 percent of 35-49 year olds said they like where they live and don’t plan to move even if their rents rise. Both Freddie Mac and Zillow surveys found a common increase in confidence among renters in their own financial situations, in the economy as a whole and in the housing market, yet the number of renters who plan on renting their next home actually increased.

 

Though it may feel uncomfortable for many to put the extra money down to become a homeowner, now is the time to do so. With the housing market finally stabilized, and renting prices at all time highs, owning a home comes with significant advantages over renting. In a third survey, Bank of America found that 86 percent of surveyed homeowners said owning a home is more affordable than renting. This was in sharp contrast to those surveyed that were not homeowners. Only 54 percent of them said owning a home was more affordable. This is evidence that many Americans do not understand how economically beneficial owning a home is until they take that leap of faith for themselves. In addition to the financial benefits, homeowners also do not have to deal with a landlord ever again. Sounds like a pretty good deal to me.

Sources:

http://www.themreport.com/daily-dose/04-12-2017/payments-biggest-barrier-homeownership

http://www.cnbc.com/2017/04/12/renters-are-staying-put-heres-why.html

http://money.usnews.com/money/personal-finance/articles/2014/04/15/when-homeowners-are-better-off-than-renters

https://www.census.gov/housing/hvs/files/currenthvspress.pdf

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7 thoughts on “Is renting the way to go in 2017?

  1. coreymanley25

    Great article. Offers good insight to an ongoing discussion in our country. I too believe home ownership is the way to go for all of the reasons listed and one more big one too. Those who own homes are able to claim interest paid on their mortgage on their annual tax refund, this lowering their adjusted gross income (AGI) and shifting them down in tax brackets, which ultimately adds to their assets while subsequently lowering their income tax, a benefit renters do not receive.

    Reply
  2. emmawarren18

    You make really good points here. A potential topic to look at stemming from this would be how sites like airbnb affect the housing markets. For example, I live in Portland, Maine, and we are facing a housing crisis at the hands of short term renters like airbnb. It would be interesting to see if people are taking your advice and buying homes only to rent them out for profit.

    Reply
  3. Lexi Tamburello

    I thought this was a great blog. The benefits of owning a home can be great, but unfortunately many cannot afford/finance a home. As I read I wondered if a decrease in demand for homes will soon result in decrease prices in the housing market.

    Reply
  4. lrtamburello

    I thought this was a great blog. Although the benefits of home-owning can be great, many are unable to afford/finance a home. As I read, I wondered if the decreased demand for homes will soon result in a decrease in the high cost of the housing market.

    Reply
  5. michaelmorigi

    I think that this data shows is another sign of increasing urbanization. I know if you are trying to find a spacious home in or near NYC, you better have some deep pockets.

    I think part of the reason why 35-49 year olds are still willing to rent is due to the nature of rent control laws. I do not know the specifics, but I am certain there are certain conditions and laws that stipulate if you have held the lease for an appt. for a prolonged period of time, you would be entitled to only very modest increases in rent. Given the cut-throat nature of finding housing in high-demand locations where people can actually find good-paying jobs, I am sure people who have a set space, set careers, families, etc. would not want to have to deal with the stressful process of home-searching.

    I wonder if there is some impact from the usage of homes as an investment vehicle. I know in NYC the FBI has attempted to crack-down on shell companies using the booming real estate market to get rich quick, but leaving homes vacant – thereby further inflating prices & construction yet not actually housing anyone. (ex: https://www.nytimes.com/2016/07/28/us/us-expands-program-to-track-secret-buyers-of-luxury-real-estate.html?_r=0)

    Reply
  6. cnhend19

    I find it interesting that the rental market in the United States is so large, given that home ownership has always been a staple of the “American Dream”. It makes me wonder if this “Dream” is still realistically obtainable.

    Reply
  7. Victor Matheson

    One point of current interest is Trump’s tax reform plan. If Trump and Congress do away with the tax advantages of home ownership by eliminating income tax deductions, that could have further ramifications.

    Reply

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