For centuries, home ownership has been a symbol of power, status, wealth, intelligence, and more. For Americans, it has been a right of passage, and part of “living the dream.” Yet recently, we are seeing more apartment buildings rise up and more houses sitting empty. It seems that the symbolism and dream of house ownership has become a thing of the past, at least for many Americans.
As expected, the dream of home ownership began to decline in 2008 as many lost their homes in foreclosure and were forced into rental situations instead. What economists didn’t anticipate, however, is that home ownership would not simply bounce back after the economy regained stability. Given the opportunity to buy a home at a good price with low interest rates, anyone would buy a home… or so they thought. Ryan McMaken, an economist with the Colorado Division of Housing, noted that “in spite of very low mortgage rates for home buyers, renting apartments remains a very attractive option for many households.”
According to the U.S. Census Bureau and the Colorado Department of Numbers, we have had a large decrease in home ownership and increase in rentership. Mid 2007, before the economic crash, home ownership was at 68.7% in Colorado, 64.1% in the Western region of the United States, and 68.2% in the United States overall. During the recession, you would expect a dramatic fall, followed by a rise back up to where we were at or higher. Instead, we have seen a gradual decline so that at the end of 2013, six and a half years later, home ownership has fallen to only 59.3% (almost 5% decline) in the Western region of the United States and 65.2% (3% decline) in the United States overall. Those percentages sound small until you think in terms of millions. In 2007, around 96.4 million people were renters in the United States. That number has gone up to 110.3 million at the end of 2013. We have also grown in population during that time, so the numbers may be a bit skewed, but you get the point.
So why are more people renting and fewer people buying homes?
Economics have something to do with it, but only about 15% of renters say they rent because they can’t get a mortgage. However, many are now realizing that there are hidden costs in owning your own home. While mortgage costs are down in some areas, there are transportation costs to take into account if you have to buy in an area further from work. In addition, many “affordable” houses require tens of thousands of dollars in repairs and updates.
The big reason isn’t economics though, as 82% of renters plan to continue renting because they don’t want to own their own home and they enjoy renting. While renting, if something breaks, you call the owner or the maintenance department and they fix it for you at no cost. If you own your home, you have to invest your own time into it or pay a repair agency a lot of money to have it fixed. In Colorado, a big factor is snow removal. You can spend hours after work breaking your own back to remove all of the snow, or if you’re renting, then the removal is already done when you leave home in the morning and when you get back from work. There are also often amenities such as swimming pools, tennis courts, and even exercise facilities included in the rent of an apartment.
Location, location, location is another reason. Sure, most Americans can afford to buy a home, but can they afford to buy a home in the neighborhood they really want to live in? Neighborhoods that are close to all of the businesses, have quick access to desirable amenities, and have great schools, HOAs and neighbors are out of reach for many homebuyers. Renting can be more reasonable, allowing many to choose the neighborhood that they really want to live.
In addition to all of those reasons, many, especially of the younger crowd, simply don’t want to be “tied down.” If you rent, you are making a short-term commitment to one place. If you buy a house, you are locked in for the 30 year long haul. If you still want to move around and explore different areas, you aren’t ready for this commitment. In the past, a family could simply sell their house and buy a new one in a new area. While we are offering cash for homes, there are few organizations like us that allow you to cut ties with your house so quickly. If you try to sell your house in the traditional manner, you may be waiting months or even years for it to sell.
Because of the current real estate market, and the lack of buyers out there, buying a house in not as great of an investment as it was in years past. Actually, houses were never the most reliable or the best paying investment option. The National Multi-Housing Council posted a study saying that if you put $100 into a house in 1985, it would be worth $210 in 2008, while if you put the same into stocks, it would be worth $710 in 2008. Even with a 50% decline on the stocks, you would have $355 instead of $210. In the past, you could generally at least get what you paid for a house or a bit more. Since the economic downturn, however, you may take a loss on your house. Danilo Pelletiere, research director for the National Low Income Housing Coalition, co-authored a study that found that prices in 34 of the largest 100 metro areas in the United States have homes at prices more than 15 times their annual market rent, leaving a lot of room to fall and leave owners with a loss if they want to sell in four years.
Overall, renting is looking more and more like the better option to many Americans. The housing market as we knew it has changed.