WELCOME TO “GENERATION RENT?” – transient status or a lifetime sentence?

by Tim Herriage

WELCOME TO “GENERATION RENT?” – transient status or a lifetime sentence?

by Tim Herriage

by Tim Herriage

7-29 HOMEOWNERSHIP RATES
This week the U.S. Census reported that the U.S. homeownership rate fell to 63.4 percent in the second quarter of 2015. Is this a bad news or a good news story?  It depends on your perspective.  SFR Landlord, tenant or aspiring homeowner?
This number is down from the 63.7 percent recorded in the first quarter and down from 64.7 percent in the same quarter of 2014. It marks the lowest homeownership rate since 1967.
 
AMERICAN MAGIC REALIZE AMERICAN DREAMS
Homeownership is considered an essential part of the American Dream. Unlike most modern Western economies, the U. S. decided nearly a hundred years ago that stimulating mortgage lending by local banks was a great way to move an economy forward. This ultimately led to the secondary market for mortgages and the government-sponsored enterprises of Fannie Mae and Freddie Mac. Add-ons and excessive social and financial engineering pushed homeownership rates beyond “natural numbers.” Too much of “a good thing” essentially helped us into the Great Recession.
It is worth noting that other modern Western economies that have adopted many American financial techniques to promote homeownership have all landed at natural homeowner to renter ratios. These are all in the low 60 percent and this is when their average city house price to average annual income are two and three times that of most U.S. cities.
“GENERATION RENT” IS A STATUS NOT A SENTENCE
For large portion of the SFR rental population, “Generation Rent” is a transient economic status not a lifetime social sentence. Current national economic favor landlords. These conditions are a constant in economically popular markets and neighborhoods and are the targets of wise investors, but this is not always the case in all markets and neighborhoods. Changes in business conditions, growth or regulation/stimulus can mean a turnaround.
Many SFR renters aspire to homeownership. Currently there are a number of barriers such as available credit, tight consumer mortgage restrictions and house scarcity that delay fulfilling that aspiration.  At some point in the future these will ameliorate and benefit from a future mortgage market stimulation cycle.
7-29 RENTAL VACANCY RATESVacancy rates have not been so low since the 1980’s and favor landlords. We expect assuming rental rates continue to rise at a faster rate than incomes, this fact will push some renters to buy, but this will be measured in fractions of a percent in homeownership.  Although small relative numbers, these are still billion dollar opportunities for the real estate industry.
INVESTORS BENEFIT
And if vacancy rates rise to make your SFR rental property no longer viable as a cash flowing business, the house can always be sold to an aspiring homeowner creating an equity event on top of years of positive cash flow derived from rental payments.
Selling or Buying? Investable Real Estate can assist

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Top