5 Reasons You Should Consider Home Ownership
By JD Esajian on November 27, 2017
Fewer Americans are buying homes. This isn’t exactly breaking news, but it is important to recognize if you are in the world of real estate investing. Like everything else in real estate much of the data depends on your current market. In some markets sales are robust and demand exceeds supply. However, the national average shows that homeownership has hovered around 63%, just off historic lows. A common reason why is because the mortgage collapse is still fresh on everyone’s mind and would be buyers are afraid to become homeowners. This may be a part of the reason but far from the driving force. There are several reasons why buyers have stayed away in recent years. Here are five reasons for the current dip in home ownership.
- Lack of down payment. For the most part we are a nation of spenders rather than a nation of savers. The idea of saving for almost anything has slowly faded away. In this day and age of instant gratification saving a year or more for a down payment is all but gone. Even with FHA and other reduced down payment programs fewer buyers have the necessary down payment funds. Many first-time home buyers come right from college saddled with excessive credit card and student loan debt. Before they get their first real paycheck they find themselves in the hole. Instead of putting money away for a home, they are simply trying to keep their heads above water. If they do decide to live on their own they typically opt for an affordably priced rental rather than new home. Loan programs are constantly changing with 1% down payment options now available but it hasn’t done much to attract new buyers. A lack of down payment is a major hurdle.
- Loan process. Anyone who has tried to get a loan in the last decade knows just how difficult it can be. While things have gotten much smoother in recent years it is still no walk in the park. Not only are loan guidelines still prohibitive there are mounds of paperwork required. Most of these are common sense they can still be frustrating and time consuming. It is not uncommon to spend weeks getting everything in order only to hit a snag at the 11th hour. At this point you are out time, money and still not in the house you desire. For many buyers this is the breaking point and they decide that renting is the path of least resistance. Instead of worrying about inspections, appraisals, tax returns, bank statements and payroll deductions they can look at a couple of rentals and be done with it. The security deposit is much less than a down payment and they are not locked into a place to live for years. The loan process will never be dumbed down like it was before the mortgage collapse so if you want to buy a house you need to accept what comes with it.
- The millennial mindset. It wasn’t that long ago when you finished college, you got married, found a house and started having kids. Your first house was almost always a small, starter home and you worked your way up from there. Over the past few decades there has been a devaluing in just how important home ownership is. Millennials currently value experiences over home ownership. They would rather take a trip abroad or rent in different parts of the country until they have settled on a career. There is certainly nothing wrong with this thinking, but it has greatly reduced the pool of potential buyers. The number of first time homebuyers is at an all time low. Most people under the age of 24 don’t put a premium on homeownership. What was once a way of forced savings is not almost considered a burden and a liability.
- Job market. One of the lasting effects of the mortgage collapse has been the reduced stability of the job market. Unemployment is no longer the major issue it was just a few years ago but there has been a definite change in the way people are hired and fired. No longer is it likely you will work at the same company for 30 years. It is more cost effective to let you go a few years too early rather than a few years too late. For recent graduates the job market can still be challenging. Many of the jobs are of the short-term variety, making it difficult to feel comfortable purchasing a home. Even if you have a stable job you never know when you will be transferred to a different part of the country or even just a few towns over.
- Renting is easier. There is plenty of debate as to whether owning a home is an asset or a liability. For the right property in the right market it can be an asset but conversely the wrong property is a huge liability. Many potential buyers view owning a home as a liability and put it off for years down the road. As a renter you down have to worry about paying taxes, cutting the grass, repairing the dishwasher and shoveling snow. All you have to do is pay your rent on time every month and take care of the property. You aren’t getting much for your money every month, but you don’t have to make any additional expenses either.
The real estate market is cyclical. First time homeownership is down today but things often change on a dime. If younger, first time buyers come back in full force the real estate market is primed to explode.