The U.S. is Becoming a Renter Nation
The American Dream as we know it is thing of the past. Fewer and fewer people can afford to purchase a home, and more and more prefer to rent in lieu of purchasing. The statistics are showing that America is becoming a renter nation. There are a few key elements creating this unique scenario:
High cost of housing
As of July 2022, the average home price in America increased 7.6% year over year to a median price of $412,659. To put this in perspective, the median home price three years ago was $322,500, nearly $100,000 less. The increase in the cost of housing translates to an increase in downpayment and an increase in monthly payments.
Lack of supply
The housing supply has become a worsening problem since the 2008 housing crisis which created ripple effects that are still being felt today. The housing crisis in 2008 sent many home-builders into bankruptcy and froze nearly all home building. The shortage is currently in the millions, and it's not getting better. The deficit is creating an increased demand for buyers who are forced to increase prices to beat out the competition.
High Rates & Inflation
Interest rates and inflation are continuously rising, contributing further to a decrease in affordability and an increase in home prices respectively. The combination of high-interest rates and inflation is wiping out buying power while increasing prices. The national average rate for a 30-year fixed mortgage is 5.4% (2022) compared to less than 3% this time last year (2021). Inflation has recently been recorded at roughly 8.5%, compared to the national average inflation over the last 30 years of 3.8%. Many sellers are deciding to hold off on selling rather than reduce their prices, restricting inventory and increasing demand.
One of the largest challenges for homebuyers today is having enough capital for the downpayment. On an average-priced U.S. home ($412,659), the downpayment is $82,531. There are many different loan programs such as FHA and government-backed loans that allow reduced downpayment, however, due to logistics, offers with these loans are usually beaten out by a conventional offer. The cost to rent an apartment (first month, last month, and security deposit) is much less capital-intensive than purchasing a home and therefore more attainable.
There are intangible benefits to both home ownership and renting, however, those of renting are in higher demand. Intangible benefits of renting include flexibility, predictability, and lack of maintenance. These are outweighing the intangible benefits of homeownership such as the pride in ownership, a sense of security, and tax deductions.
The US is becoming a renter nation and it's not going to change any time soon. The current economy as well as the average lifestyle of a homebuyer is catering toward rentals at the same time as home ownership affordability edges farther and farther away.