Why America Is Turning Into A Nation Of Renters
The American Dream of homeownership is getting more remote for more of the population as the gap between the haves and have nots increases.
It seems America has fallen out of love with the American Dream of home ownership. Touted as one of the benchmarks of a successful society, those owning a home in the US appears to have nose-dived as more and more people, in all income brackets, are deciding to rent.
A Harvard University Joint Center for Housing Studies report said 1.4 million new renter households were formed in 2015, pushing the percentage of U.S. households that rent to 36.4% — the highest level since the 1960s.
Before mortgage brokers cry in despair, there is some hope for the home selling industry as rental numbers still pale in comparison overall to those owning a home. A recent Abodo study shows that there are over 400 urban areas in the U.S. with populations exceeding 100,000, but only 21 contain at least 50% renters.
There are certain cities where rental numbers have shown a sharp increase. Not surprisingly, New York, San Francisco and LA — all with over 50 percent of the population renting — are where the cost buy a home has also dramatically increased, so much so that paying a monthly rent is cheaper than a mortgage. In New York owning a property often costs $1300 or more a month than the city’s median rent. With job growth and job wages still low the prospects of many renters being able to afford a house seems remote.
“It doesn’t paint a pretty picture,” said Svenja Gudell, chief economist at Zillow, the online real estate database company. “You’re really blocking out a group of buyers from owning a home. They’re truly living paycheck to paycheck, and that does not put them into a good position to buy.”
According to the Associated Press, which analyzed over 300 communities last summer, two main factors are driving a wedge between the fortunes of renters and homeowners:
Firstly, low mortgage rates have enabled homeowners to refinance and shrink their monthly payments. It means that the median annual mortgage expense for a U.S. homeowner has dropped by $1,492 since 2006.
Secondly, a combination of foreclosures and new college graduates crowding into the strongest job markets has raised demand for rentals. Renters accounted for all the 8 million-plus net households the United States added in the past decade. Home ownership has dipped to 63.5 percent, near a 48-year low.
Now, with the latest figures a third factor has come into play — the rapid increase of house prices in major coastal cities in America, meaning a downpayment and mortgage are beyond most people’s means. It’s been a vicious cycle until recently with landlords, feeling they have a captive audience, raising rents to such a point that early last year Brooklyn was named the most unaffordable city in America. However, the massive construction in New York City has created a rental vacuum in the last few months, with a glut of vacant apartments on the market, a rental prices dropping.
Still, the cities are still way too expensive for many, especially families, and so the rental demand has spilled over into the suburbs with cost burdened families living in rental accommodation. That number is also high, if not higher within millennials who see no reason to hitch themselves to mortgage. Cities such as College Station in Texas, home to Texas AM University and its 58,000 newly enrolled students, has a staggering 59.1 percent of renters living there and is the No. 1 rental city in the US. Most of these graduates will not be getting mortgages without a high paying job and decent credit.
A study last year by NYU’s Furman Center and Capital One confirmed the increase in suburban renters. While the renter population in major cities increased by nine million people during that eight-year period, in the surrounding suburban areas it increased by 12 million people.
“The story really is that the pressure in the market is growing. It may have started in the cities, but it’s moving further out,” Laura Bailey, managing vice president of community finance at Capital One told the Wall St Journal. And while that may be good news for landlords, for others it makes American Dream seem more like a fantasy.
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