Today's housing market isn't kind to aspiring homeowners. So much so that the stereotype of the hopeful-yet-hopeless millennial is engrained in the public consciousness, a reminder that fewer young people have the means to purchase a property.
And who can rightfully blame them? Many postpone this important life decision to save enough money for mortgage payments, much of which they spend on rent. All the while, house prices rise as economic uncertainty casts further doubt on the American Dream.
It's not only the millennial demographic that struggles with homeownership. The country is beginning to see an increased rate of those who rent. What are the contributors behind this transition, and in what direction is America heading?
Low Salaries and Debt
The leap from renting to homeownership is sometimes precarious. Those who aren't accustomed to all the additional expenses will have difficulty as they adjust. Without a considerable increase in salary, many low-income Americans can't justify a larger living space and all that it implies.
More than the basic stressors of upkeep and maintenance, many young people in the workforce have a considerable amount of student loan debt that dictates their purchasing decisions. Taking on the extra cost of mortgage payments is unlikely to alleviate their financial stress.
Less Confident Overall
Homeownership itself is a risky proposition for some. The amount of money a homeowner has to invest to keep their property maintained and properly insured can tie up all of their assets in a single location, and if something were to happen to it — such as a natural disaster — they could lose everything.
In addition to the potential perils of homeownership, renting allows for a greater degree of flexibility for those who aren't ready to make a long-term commitment. Renters are only responsible for the guidelines of their lease and can choose to leave at expiration, as opposed to the far more difficult task of selling a home.
Lastly, in an increasingly uncertain political environment, some potential homebuyers are less confident in the way that they spend their money — especially when faced with a sizable investment like homeownership.
Where Is America Going?
The primary contributors that affect the percentage of renters in an area are local housing prices and home affordability. As long as these two factors continue to trend upward, landlords will enjoy the benefit of an increased interest in their properties. And there are ways that an investor might capitalize.
Testing the temperature of the waters, real estate investors who purchase rental properties in communities with rising house prices might benefit from offering those in the area lower cost substitutes to permanent housing — a win-win situation for everyone involved.
Americans may once dreamed of a suburban neighborhood with a trimmed lawn and a white picket fence, but rentals offer the flexibility and mobility that modern workers need. This isn’t to be overly dramatic, of course — property ownership is still an aspiration for many.
Continuing to Dream
Americans are still interested in homeownership, regardless of their current living situation. A nationwide survey revealed that over 80 percent of Millennial renters born between 1982 and 2004 want to purchase a home for themselves, but are unable to due to their financial situation and other barriers to entry.
Despite their interest, those in large metros will need at least a decade at their current rate of savings to accumulate enough money for a 20 percent down payment on a condo. Some will have to wait an estimated 24 years, a grim prospect for young Americans intent on starting a family.
What to Expect
Unless the country sees a dramatic shift in affordability or an increase in the average income, the public will struggle to meet the high demands of the housing market. This current reality is an asset to landlords and represents an excellent opportunity for real estate investors, however.
Rental properties will become even more important than they are today as rising interest rates and uncertainty make tenants more reluctant to dive on a home. Property investors can create the flexible living situation Americans are currently in great need of while growing their own wealth for years to come.
Holly Welles is the editor behind The Estate Update, where she shares real estate tips and ideas for home fixes.