What’s Behind the Spike in Home Rentals in the USA?
It’s still fair to say that average American renters are younger and earn less money than average homeowners. With that said, the growth in high-income rental households has exceeded the growth in rentals by people with lower incomes over the last decade, according to a report from Harvard’s Housing Study.
In addition, America’s large population of boomers are beginning to transition from middle age to senior citizens, and many of them are also beginning to transition from owners to renters. At the same time, members of Generation X and Generation Y are putting off home purchases until much later than the boomers did when they were the same age. As the Millennial Generation becomes young adults, they have also become renters and not buyers. That is, young adults rent if they can even afford to move out of their parent’s houses at all! What this means is that it is not so easy to classify average renters by either age or income.
The U.S. Decline in Homeownership Rates
There is no doubt that many Americans still consider owning a home to be idea, but buying a house with a mortgage does not seem to be what everybody is doing any longer.
American home-ownership rates have declined all across the board:
- A decade ago, the rate of owned households was 70 percent.
- Today, that rate is about 64 percent.
- The growth in rentals has been higher in some populations than others. However, there has been an increase with younger and older people, minorities, immigrants, and native-born whites.
- As expected, more singles and couples tend to rent, but more families with children are also choosing to rent, and this includes one-parent and two-parent families.
Why Are Fewer People Buying Houses in 2016?
Of course, owning a home has its advantages. In an ideal situation, the owners have a chance to build home equity and a sense of security. However, the recent housing crisis may have soured some older homeowners on these virtues. Also, the costs of owning a home exceed the mortgage. There are also taxes, insurance policies, repairs, and maintenance that have to be accounted for. For some populations, the convenience of just paying rent and not worrying about the rest may exceed the benefits of being responsible for a house.
The renting vs. buying a house debate is an old one, but many Americans are drawing different conclusions in 2016 than they did in 2006. For example, even younger boomers are considering renting as a way to downsize for retirement. This is true even if they haven’t retired yet.
Of course, mortgage rules are generally tighter than they were a decade ago too. Even though interest rates have remained low, this may not outweigh the need for better credit and a larger down payment. It’s a lot tougher to satisfy mortgage company requirements than it was a decade ago, so people that may have easily qualified for a loan a decade ago are finding the process too difficult or even impossible.
Also, alternative housing has become more mainstream in recent years. Renting, co-housing, and even living off the grid are beginning to attract folks who want to save money or live in a more sustainable way.
Mostly the Harvard study accounted for the increase in rentals because of changing populations.As expected, increasing numbers of immigrants begin by renting. Seniors may sell their homes in order to downsize and move into housing that is easier to care for and offers services that older folks desire. Young people struggle with a greater burden of student debt and a workforce that offers more low-paying service jobs. Even if economic conditions improve, the study still predicts a shirt towards a large rental market. Owning a home is still a goal for many Americans, but it isn’t everybody’s dream.