The Housing Market is Heating up and Home Ownership Rates are not!
Buy or rent? The age-old question. The right answer is so personal that no sweeping statement or statistic would give it a fair treatment.
Here are some of the questions we all ask ourselves when we are seriously considering the purchase of a new property:
What type of home am I searching for? How big? In what location? Current mortgage rates? My credit score? My income? My savings? My career? My family? My pets?
We are currently in the midst of a much-needed housing recovery. Mortgage rates are at or near all time lows, and pent-up demand is stronger than supply in many markets forcing prices up.
I believe we are in the 1st quarter of this recovery. This should lead to a slower, longer and hopefully healthier recovery then the last housing cycle.
According to the Census Bureau’s Current Population Survey/Housing Vacancy Survey (CPS/HVS), the national homeownership rate fell from 69 percent in 2004 to 65.4 percent for 2012—the largest decline since the Great Depression. Nevertheless, the downward trend in homeownership is slowing, according to quarterly CPS/HVS data, indicating that the period of large declines has ended with the gradual unlocking of pent-up housing demand.
One of the realities of this “New Economy” is that homeownership rates are not likely to climb in this housing recovery.
If you agree with the data and this statement, 2 questions come to mind:
“Why?” and “What are the implications?”
Is the American dream of home-ownership over?
A few realties have changed since the last housing cycle:
- Homes = ATM’s, or at least that’s what a lot of people used to think. Many homeowners took massive lines of equity out of their property with anticipation of a never-ending appreciation of their property value. More folks now understand that owning a property could be a tremendous liability and there are no guarantees for a huge pot of gold when you need or decide you want to sell.
- Down payment = Barrier to entry. New and much more sensible lending rules were put in place after the crash. Buying a home nowadays means, in most cases, writing a huge check upfront.
- Uncertainty = Rigidness. No clarity on job security, taxes, healthcare. Over the last few years, businesses and individuals alike find it hard to rely on major issues that, during other times in our history, we could take for granted.
- Buying a property is usually a very long-term decision (or at least it should be), when so many of us don’t know for certain what our projected income is going to be (if it will be there at all) and what our taxes or liabilities will look like, the decision to get “tied-down” to a large investment and a specific property is much more difficult.
- Return on investment. For most of us, buying a home/condo is the largest investment we ever make, when we make an investment we expect to get a good return. We all heard the line “Why throw money away on rent when you can pay towards equity in your own house?”
Well, after the most recent crash, and to this day, many homeowners are still “underwater” which means that their house is worth less then what they owe the bank.
These are some of the many other reasons that lead people to choose to rent.
Yes, rents are high in many markets (and going higher). Yes, it’s hard to find a great apartment/home. And yes, in the end, you don’t get your name on the deed.
But, renting is no longer the choice of the less fortunate or reserved exclusively for the young student or young professional. Renting is now the smarter choice on a myriad of levels for an increasing group of Americans.
In conclusion, the “American Dream” is alive and well. It has evolved from a white picket fence, to a more mature and sustainable vision for all.
Unlike the “for-sale” market, the “for-rent” market was never as exposed to drastic ups and downs. The renting base in the U.S. has changed, strengthened and grown.
The shift to renting is here to stay!