It’s true that the United States economy is on the mend and that the housing market is slowly improving, but that doesn’t meant that people are ready to put their hard earned money into it. People are beginning to step out of their comfort zones, but they’re still wary of their economic surroundings. As a result, more people are choosing to rent rather than to buy their homes, leading to a period that experts are calling Rental Nation.
The Recession’s Influence
Home ownership was once considered a major part of the American Dream. Once you reached adulthood, attended college, landed your first real job, and started a family, entering the real estate market and buying a home was the next logical step. However, all of that changed with the 2008 recession.
In 2008, national home ownership fell to just 65 percent, going down four percent from a few years earlier. This was a direct result of the higher unemployment rates, decreased wages, and overall desperate situation of the American economy. Once the stocks plummeted, and the financial system could barely sustain itself, banks stopped lending easy money, and starter home sales decreased significantly.
A large reason for this drop is derived from the young, also called millennials, or Generation Y, rather than from the more established Generation X. When the economy dove, many students were forced to take out hefty loans in order to finish their education. What’s more, the interest rates for these loans were increasingly high, and student debt soared from 26 to 39 percent in just a few years. With that much debt to worry about, purchasing a home shortly after college was simply out of the question for a large number of graduates.
As a direct result, the number of rented households spiked by 3.4 million between 2007 and 2011. The low economy has driven these numbers, and the cost of owning a home, getting a loan, and caring for its maintenance and repairs continue to increase, even as the economy improves. Millennials are nervous to put their hard-earned money out there, and the result is Rental Nation. Here are some of the most common reasons that people are choosing to rent more than to buy.
Banks Are Still Stingy
Banks have a lot more money to lend now than they did eight years ago, but that doesn’t mean that they’ll give it to just anyone. Those who aren’t already established will have a difficult time taking out a mortgage for a home without a cosigner. Qualifying standards for such a large credit are much higher than before, depending on the applicant’s credit score, total debt, and annual income. Most of the time, for young renters, the numbers that accompany this background check aren’t enough to land them a loan.
Saving for a Down Payment Is Increasingly Difficult
When the recession first hit, the required down payment for a home was as high as 20 percent in some cases. That meant that those wanting to purchase a $200,000 home had to front $40,000 before the bank would offer a loan. Thankfully, in most instances, that number is now significantly lower, and some can put up a down payment as small as 3.5 percent. For a $200,000 home, that’s still $7,000 upfront that many people don’t have, thanks to their month-to-month style of living, mounting student debt, and the high cost of living in today’s economy.
Renting Is More Affordable and Convenient
Even though the capital that tenants put into their rental property technically doesn’t go toward a long-term investment, it’s still a more affordable option. As home prices rise, so do mortgage payments, and many find that it’s a lot cheaper simply to pay the rent payment each month rather than trying to cover a high mortgage and any repair and maintenance costs that come with it.
Furthermore, renting is far more convenient. Millennials have grown up in a world where immediate satisfaction is the status quo, and they like the freedom and convenience that comes with letting landlords and property managers take care of everything from fixing the boiler to mowing the lawn. The freedom and almost zero commitment that comes from renting is something that you’ll never find from purchasing a home.
Renting Is Gaining More Prestige
In the past, renting was often looked down on as a form of financial failure or a lesser point of status. However, that doesn’t seem to be much of an issue anymore. Many are finding that renting is just as appealing as buying, particularly for those who live in urban areas where finding a home downtown is almost impossible.
In addition, rental properties are beginning to take on a fancier look. Interior designers can transition a plain, two-bedroom apartment into an incredible home. It goes to show that renting doesn’t mean that you can’t have nice stuff – an overly saturated myth from the past.
Real Estate May Not Be the Best Investment Anymore
Real estate was the go-to investment in the United States for decades. It was part of the American Dream, reminding people that making millions off of something so simple was easy. However, investors are beginning to move away from that school of thought. Owning a home is becoming more of a risky venture than a great opportunity. Though people still choose to invest in real estate, they typically choose to do so with the intent of renting it as an income property instead of flipping and selling it.
Join Rental Nation with Green Residential
There are a lot of factors that go into the “why” of Rental Nation, but the most important takeaway is that entering the real estate market with the intent of renting out properties is a highly lucrative market, and Green Residential can help to get you there. Through our property management services and years of experience, we can work with you to find the most lucrative investment, and then manage them so you get the best return on investment with the least amount of hassle. For more information about how we can help you get started in the rental world, contact us today!