Why Renters are Not Buying Into the “American Dream” of Homeownership

The Bryan Ellis Investing Letter ^ | September 11, 2014 | Carole VanSickle Ellis

[2ndDivisionVet]

We’ve all heard that millenials are the key to the housing recovery and that home prices are set to skyrocket just as soon as all the people renting or living in family homes (read: basements) get out, get married, get employed, and settle down in their new homes. However, for some reason, the estimates for when all this will happen just keep moving farther and farther out. In an effort to determine just what is delaying renters from becoming homeowners, the New York Federal Reserve conducted a Survey of Consumer Expectations to address the issue. The study found that while most renters have a “desire to own,” a number of factors are preventing them from buying. Some of these factors are very real hurdles to homeownership, while others are literally all in the renters’ heads.

The biggest hurdle to buying a home for most renters is a very large, very real one. More than half (55.7 percent) say that they simply do not have enough money saved or that they are paying too much money out toward debts. 52.7 percent report that they do not make enough money to purchase a home, and 41.4 percent report that their credit is not good enough. Interestingly enough, however, many renters do not actually do any research before coming to these conclusions. About two-thirds of renters reported that they simply think it will be “somewhat or very difficult” for them to get a mortgage versus actually knowing this to be true[1]. Furthermore, many renters do not even check their credit to determine whether they have a viable score for buying but simply assume that they do not; more than a third (35 percent) “think that their credit score is below 680” rather than actually knowing this to be true. “They are convinced that they would not be granted credit and thus may fail to apply for a mortgage even after an easing in standards,” explained Fed researchers in their report. The researchers also added a caveat regarding lowering borrowing standards. “Relaxing credit standards may…have undesirable consequences down the road since borrowers with lower credit scores are at higher risk of default,” they wrote [2].

WHAT WE THINK: While we want to believe what so many rose-colored-glasses-wearing analysts are selling (namely that we can get back to a serious real estate boom before 2020), reports like this indicate that we are simply living in a new era for real estate in which appreciation is not fast and not guaranteed, in large part because an increasingly large portion of the population is opting out of homeownership and feeling okay with that decision. While the NY Fed did determine that most renters think buying a house would be a good investment, those renters’ perspectives on their own personal homeownership experience do not indicate that they will actually buy. As long as they keep renting, the face of the housing market is going to continue to change and the dream will be less and less universal because these individuals are going to raise families and socialize among friends who do not necessarily think homeownership is crucial to happiness, productivity, or professional success.

Do you rent or own? Wish you did something differently?

[Terry L Smith]

Dear wintertime,

it might be that you have forgotten that “obamacare”, in it’s legislation, also tacks on a sales tax, on every home or property that is sold, from the day the bill was signed.

[wintertime]

That, too.