Updated: 7/29/2011 7:55 PM ET|
Renting: The new American dream?
Homeownership rates are falling, and the trend is expected to continue. Is something fundamental changing in the American psyche?
Mark Kiesel and his wife, Amy, sold their Newport Beach, Calif., home in 2006, near the peak of the housing bubble. They put most of their possessions in storage and rented a 1,400-square-foot apartment that's still their home, five years later.
Kiesel is managing director at investment management company Pimco. His research for work helped him spot the coming crash, and his research today tells him there's no hurry to buy a home again. Besides, he's happy as a renter.
"I'm considering buying," he says, "but I'm pretty confident that I'll be waiting to buy until 2012, or it might be 2013."
Kiesel has plenty of company. While real-estate listings languish, the demand for rentals is growing. Nationally, rental occupancy is 93.1%, a rate last seen in 2007 (but below a peak of 96.6% in 2000).
Renting "has cachet. It's the new black," says Stan Humphries, the chief economist at Zillow. His company's research found that a quarter of Zillow users were open to buying or renting, leading the company to add rentals to its property and to unveil a feature that lets users estimate the rental value of a listing.
"There's a wall of capital moving into apartment development," says Jeff Meyers, a principal in Meyers LLC, which advises investors on the multifamily housing industry. "Put it this way: It's easier for an apartment builder to get a construction loan than it is for the average American to get a mortgage."
Plenty of reasons to rent
Is renting about to replace property ownership in the hearts and psyches of Americans? With the traumatic disruption in housing lately, it certainly feels as if something fundamental is changing.
Some economists believe an elite class of renters may be developing: high-earning workers who live in big coastal cities and switch jobs readily, Humphries says.
Powerful forces are contributing to the rise of renting:
- Foreclosure refugees. "We're going to take 5 million to 6 million homeowners and turn them into renters because they're going to lose their house to the bank," predicts housing analyst John Burns, the CEO of John Burns Real Estate Consulting. Credit reporting company TransUnion surveyed 1,252 managers of large and small apartment complexes last month and found that nearly half had reported an increase in tenants moving from foreclosed properties.
- New households. As soon as the economy started improving, people who'd been waiting out the recession by living with friends or family started to strike out in search of rental homes of their own.
- Fear. Many renters have the finances to own a home, but, like Kiesel, they don't want to. They sleep better without their savings sunk in a deteriorating housing market. Or they're younger and childless and like the freedom of renting. Or they're empty nesters who've had enough of home-maintenance chores and expenses.
- Tight credit. With home prices down about a third since 2006, lots of other renters would love to buy a home at current low prices, but they just can't. Even many with good credit. Newly chastened lenders are granting home loans to very few applicants.
- Gen Y. The biggest factor in the rental boom may not be the housing crisis at all but rather the gigantic Millennial generation -- the cohort born in the 1980s and '90s. Now at average age 20, the Millennials, or Gen Y'ers, as they're also called, are a big reason for the rental demand.
Renting is huge elsewhere
In several countries -- Germany, France and the Netherlands are three -- many or even most people are lifelong renters.
In Germany, for instance, the family and neighborhood stability that's supposed to come from homeownership comes instead from laws protecting renters, says Dean Baker, a co-director of the Center for Economic and Policy Research in Washington, D.C.
Carefully written laws take landlords' rights into account as well, he adds.
But despite the current boom in rentals, few experts expect a sea change here. For one thing, it's impossible to discount how deeply the value of property ownership is embedded in American culture. A CBS News/New York Times poll taken in June indicated that 59% of those polled said owning a home is "a very important part of the American dream."
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As I say, you can either follow trends or you can follow common-sense. Remember just a few years ago when the general feeling was that buying a house was a sure way to get rich. Now, we have articles about how renting is the newest & smartest move.
So, if you continue to follow the trends, you'll be broke just like everyone else. You would have bought a house at the peak, lost big time, and now decide to rent when the market is near the bottom.
The truth is in the middle. Buy a house you can afford, and most importantly, pay it off as soon as possible. I should have my house paid off in 2 more years, when I'll be 45 years old. This means I can live from 45 until I die (statistically about 32 years) without having to pay any rent or mortgage (property taxes, insurance, and maintenance will be my only costs). Even now, my current mortgage is about $500, but equivalent houses in my neighborhood rent for $1400/mo.
The bottom line is that everyone needs a place to live. Housing is not going to be down forever. Renting never ends, but a mortgage done properly has a definite end-date.
If you can buy a moderately priced house, stay and pay off the mortgage (or pay cash, or pay the mortgage down early) - then your only housing expense becomes property taxes and maintenance. And you still have the value of the house itself.
Even with increases in taxes and maintenance over time, it's far cheaper than rent. My taxes and maintenance are about $600 a month for a 2000 sq ft house in a nice area. Rent for any decent two bedroom apartment would be $1200 and up. And that's now. Rents will continue to rise.
This is how most people of prior generations did it, and they lived pretty well in retirement. They didn't trade up to a fancier house every five years and hit retirement age with 20+ years left on a mortgage. They ended up debt free by their 60's and able to live comfortably on a lower retirement income. Then they could sell the house and have cash to pay for care as they aged. Still a pretty good plan.
If I remember my U.S. History class correctly, at one point in our nation's history, real property ownership was required in order to be eligible to vote. That may be why home ownership is so deeply embedded in the American psyche. Even though the actual laws have changed, the idea behind it dies hard.
It is a personal decision. After renting for 5 years my wife and I will move into our first house this week. When you rent the money is gone. Over the last 5 years I have spent upwards $60000 in rent. That money could have gone towards a home which would have preserved some of it. Too many people are short sighted. The problems we face will get better. We will recover. And when its all said and done we will be stronger more disciplined citizens.
While renting vs. owning is a personal choice. In this economy more times and not, rent is the only option. Poor credit, foreclosures not to mention you have to promise your first born the banks in order to qualify for a home loan. I am really tired of the banks not working with the average Jane or Joe regarding home loans, refinance or re-modify. If I am not mistaken it was our taxes that bailed out the banks from failing. And now they live high and mighty off our dime, while they ignore us.
Who the hell? Rent = all money gone? Not in the planet I live, and especially not the state CA! The day rent breaks even with buying a house, I'll get one. I'd rather pay 1200 to 1500 for rent and get up and go to the next high paying job rather then be confined to a 2500 to 5000k mortgate. Oh, that's not including the 10K property taxes. Hell, the property taxes alone are what I pay in rent!....Did we mentione the 30 to 50year loan that you will be paying interest on the rest of your life. The way I see it, you never buy a house, you rent it from the bank! Seriously, if you are well off enough to buy a home at 30, you're lucky, it's yours at 80....if you don't die first, hahaha. The American dream is a pack of BS propoganda that was slandered around to get the population to feed more money to the federal reserve. So you get taxed 20 to 30% of your yearly funds, you pay interest on your car, interest on your credit cards, and interest on a house, and you still pay property taxes for the state....which is also taxed by the federal reserve by way of your bank. Like a man said that used to sell mortgages and once had a house....."I'll never buy a house again, I don't want to be an indentured servante the rest of my life!" Did I mention you also pay to fix that house you bought, yeah, the one thats about 100yrs old and has rotting wood. what's that, your house was made yesterday...yeah, with that new cheap wood that starts to fall apart withing 15 years, oops, did I say that...no, the contractor I know did. And the bankers I know made the statements above.
Get a clue, get some control!
I chuckle every time I read this home ownership articles. With the Alternative Minimum Tax (AMT) you never get the benefit of a mortgage tax deduction. And here in the Northeast, we're paying the highest real estate taxes which include the taxes for the schools. So, it's a lie. It doesn't always pay off in the end. I think Peter Lynch wrote back in the 80's that if you saved the difference between what you pay in rent and what you'd pay on a mortgage you might feasibly come out way ahead if those funds were invested in a mutual fund sitting through the 30 year cycle. I tend to believe him. I loved owning a home. I got to do all the things my father did around the house. As my Australian neighbor mentioned one day while I was cutting the grass, you Americans are house proud. Yes, yes I am. But now, you can forget it. Paying out 10K a year in taxes never to recover/only to go up and never, ever getting any kind of benefit from a mortgage tax deduction. So, now we rent and I am no longer cutting grass, paying out monies I will never recover, cleaning gutters in storms, etc etc. Home ownership is beautiful, but caveat emptor.
Imagine that, many people warned that Oscama wants to destroy America and now look at this article. It is happening right before our eyes. Oscama is partying it up on the golf course, Moochelle is jet setting across the world on our dime all while America burns and somehow people still think he's looking out for them. Sadly these morons are going to drag everyone else down with them.
I may have been incorrect in including New Jersey, New York and CT as part of the
Northeast. But when we bought our home in NJ in 2004 our taxes were 7200. When
we sold our home last August the taxes were 9300 and rising. Of that 9300, 5000 was for
school taxes. We didn't have any children. There were no sidewalks. Sanitation was privatized.
Look, every time you see a program or hear a program about buying a house, the "expert"
inevitably mentions the interest deduction. I'm sorry. But because our income was subject to the AMT we never received any benefit of an interest deduction.
Once again, I have no need to exaggerate the expense of owning a home. There's enough people out here it seems to know it all too well and doing their best to manage it. Peace.
If you want to find someone to blame for the housing mess, look no farther than Barney Franks and Cris Dodd. These two imbicles were the idiots responsible for the collaspe of the housing market. These two socialist should marry each other and get the hell out of DC. They are another democritic disgrace.
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A reader just retired and is worried that her retirement income won't be enough. She should be.