New Milestone for Renting vs Home Ownership

For the first time in history, we’ve just passed a six year mark for household formations by renters outpacing home buyers. For six years in a row, more rental households have been formed than purchased homes. One estimate is that purchase applications are now the same as they were approximately 20 years ago.
It’s certainly not news that 30% or more of all purchases for several years have been by cash investors. When Blackstone Group jumped into the fray, tens of thousands of homes were purchased for cash and placed into service as rental properties. Other large investment firms have followed suit. Small investors have been big buyers as well.
RealtyTrac announced some figures that have some bearing on this trend as well. In 325 U.S. counties, costs of owning a home (including taxes, maintenance and deducting tax benefit) rose by 21% over the past year. It’s more costly to own, but that’s only part of the story. There is also a national economic downtrend, with fewer jobs, higher student debt, and stagnant wages helping to depress home buying.
This is a troubling situation for an economy that relies heavily on new home construction for stimulus. With home purchase applications at a level of 20 years ago, it’s a bit of a problem that in that 20 years we’ve added more than 50 million in population. So, we have many more people, but they’re not buying homes. Attitudes can play a role. A recent national news organization stated that “married 23 year olds with children has become an ‘alternative lifestyle’.” There’s a political discussion there, but we’re talking about a group that in the past has been a major home purchasing force.
With a shrinking middle class, we’re not seeing the baby boomer “American Dream” scenario in younger generations. They do not have a burning desire to own their homes, and even if they do, they can’t afford it. New home sales are suffering considerably. Home builder sentiment is very low. In the past, new homes carried a premium in price, and they were in large part purchased by younger buyers. Without buying pressure, there’s no pressure to build.
If all of this sounds a little “doom and gloom,” if you’re an investor who wants to own rental properties, it’s still a great time to get into the market. Tenants are everywhere, homes are still relatively inexpensive in many areas, and mortgage rates are still low enough to create positive cash flows.