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.
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.
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.