Why America Has Ditched Homeownership to Become a Renter Nation

by | BiggerPockets.com

I see a major shift in the real estate market as we become even more of a renter nation. Why is it happening? Is there a silver lining to this economic cloud?

According to the U.S. Census Bureau, American homeownership plunged again in 2017 to its lowest rate since 1965. After the peak of 2004, when around 70% owned their homes, now just 62.9% own versus rent. It’s a throwback of almost a century—and the lowest on record, according to Census and Federal Reserve data. Why is that happening? Why is this trend only likely to continue gaining steam? Should we be buying homes or renting instead?

Related: It Gets Stranger: How Trump’s Tax Plan Impacts Homeowners & Real Estate Investors

Affordability

According to a Senior Economist at Wells Fargo Securities, one of the biggest challenges right now is affordability. House prices are rising far faster than incomes. Access to credit just isn’t there like it used to be for regular home buyers. High rents aren’t helping either. Even renters who want to buy can’t get home loans, can’t save enough for down payments, and are finding it harder and harder to make the leap.

rental-property-pros

Economic Uncertainty

If there is one certainty about the economy right now, it is uncertainty. There is political and global uncertainty, uncertainty as to when tech and the stock market will crash, and uncertainty surrounding when many jobs will be replaced by new technology. As many as 80% of human jobs could be made redundant in the next few years.

As habits change, big box stores are going bankrupt—or are at least closing locations and shedding workers to try and stay afloat. These include many of the big names that were famous back when our grandparents were in their peak working years. Everyone must be prepared to need to move with very short notice, and owning a house with a big mortgage can be a major roadblock to that.

Knowledge

The upcoming generations are far more equipped with access to knowledge than any before it. My generation saw what happened to their parents losing their houses during the big crash. They felt the devastation. They can also look up for themselves and see that many housing markets are pushing new highs. That perceived pain of loss can outweigh the obvious benefits in many would-be home buyers’ minds.

Freedom

A Rent.com survey describes Millennials as a generation of movers. Affordability may be one driver, but so are jobs and lifestyle. Forbes data shows 45% of employees don’t plan to stay at a job for 2 years. A report from CNN Money says Millennial graduates are likely to have more than 4 jobs by the time they are 32 years old. Plus, the new mobile workforce is really able to work from anywhere and is enjoying a more nomadic lifestyle. No one wants a big ball and chain of a mortgage holding them back from this.

Related: Forget the American Dream—Renting, Not Homeownership, is the Path to Financial Freedom

Homeownership is a Liability

People are also starting to realize that owning a house is more of a liability than a dream. The new American Dream may be financial freedom and the freedom to travel, not the white picket fence and a mortgage.

landlord-lessons

Summary

Owning a home does have benefits. It can still be important. A renter nation definitely benefits landlords and investors more than renters. On that same note, a renter nation creates more opportunities for investing and getting ahead financially, and more are investing in real estate, while still renting the places they live in. If the above points relate to you, know that it’s OK to reinvent your own dream and lifestyle. But do consider investing in real estate to retain the advantages, even if you’ll enjoy the freedom of renting too.

Do you see more and more Americans becoming renters in the coming years? Why or why not?

Weigh in with a comment!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

26 Comments

  1. Chris Soignier

    I see increased investor competition over the last several years bidding up prices and making it harder for would-be first-time homebuyers to actually buy a house. I still see millennials wanting to buy houses, it just gets tougher and tougher as prices continue to rise.

    I don’t care what Robert Kiyosaki or Grant Cardone say, I still like owning my home, and have seen about a quarter of a million in appreciation in my homes over the years. I look at it as renting my own home to myself. 🙂

    • Katie Rogers

      I agree. It is not so much that people have “ditched” homeownership as if they had a proactive choice in the matter. In my town, the hedge funds have been bidding up properties. They do not seem to care about cash flow or appreciation or much of anything. Nationwide, Blackrock owns 40% of rental properties. I can say Blackrock outbids me at auctions, because the numbers actually matter to me.

  2. Good article; I see some very valid points here. But under your category of economic uncertainly, the point that 80% of “human” jobs could be redundant in the next few years is a bit dramatic isn’t it? And, I believe, unrealistic.

    Perhaps our differences in opinion here would have something to do with age (I’m at the tender age of 6— now…ha) or experience (my having spent nearly 40 years in several aspects of the real estate and construction industries). Honestly, I wouldn’t consider an individual who has been in the business since ’09 to understand all the possibilities that come available over time. I’ve seen many ups/downs over four decades. Each offers it’s own possibilities for success or defeat.

    Technology and it’s advances will certainly make many changes in the near future. Some will be welcomed; others not so much. But let’s all take a deep breath before we suggest the near collapse/absence of the value of the human aspect of any industry.

    • Paul Merriwether

      Mr White .. please recheck your charts >>>After the peak of 2004, when around 70% owned their homes, now just 62.9%<< Not true!!! It hit 62.9 in July of 2016. It's currently at 63.6 for Jan 2017.

      Home-ownership will always be an ebb & flow as is the stock market. This is one of the best times in history to own a home in America for many factors. 1) Low interest. 2) Quality of homes in terms materials, technology. 3) Availability of homes in many areas. 4) Financing for homes can be found EVERYWHERE!!! No need for traditional banks etc. 4) Sites like Biggerpockets where people can learn about purchasing and owning homes.

      My first home bought in 1973 was $32,500 @ 10.5% on a VA loan. Mortgage payment including prin, int, taxes approx $300/mth. for 30 yr's. Today according to inflation calculator A $32,500 home in 1973 would be $179,000 in 2017.

      With that in mind how many homes are in that price range? MILLIONS!!! A 30 yr loan at $179,000 @ 4% is $855/mth. I pay that in car notes!!! 🙂 Homes are very affordable. What America is seeing … many people want to live in Uban areas vs the Suburbs. This we've seen in my city Oakland, Ca. now known for Gentrification. Finding a build-able lot is virtually impossible.

      You take out major cities, housing is very affordable. With the internet people are now working and earning significant incomes from home. A $900 mortgage is not a deterrent to purchasing a home.

  3. Debbie Kay Boman

    Good article. It seems to follow others I have read. I am a baby boomer and find my dream to be much different than that of my parents. My parents (they are in their mid 70’s) are content just hanging out at home gardening and reading in the same home I grew up in. My dream is to travel and live outside the country in other countries in 4-6 months increments. Not that my dream is better! Just different.

    I am working towards that Four Hour Work Week freedom that technology allows. I believe in smarter, not harder. I’ve done the harder. Retirement is NOT as it was with my parents. So I’m learning, trying new things, and very happy to do so. The absolute truth is there is always change. I’m excited about the future. I think the key is to be aware and ready for those changes.

  4. Susan Maneck

    You know its funny, but I was in my mid-forties before I was able to buy a home as nice as the ones my parents owned when I was a child and then only because I bought the house in Mississippi, not California where I grew up. Then came the recession, by the end of which I saw myself owning eight houses and a condo, something never in my wildest dreams had I imagining happening. Unlike most of you guys, I did not set any goals for getting rich quick. I just saw an opportunity and I took it, and then another one, and then another. For me it was like gambling, I got hooked!
    People do want to buy houses. But two things are happening right now to make that difficult; one inventories are low. Two, while unemployment is low, so are wages. Realistically you can’t buy a house is you are not earning a living wage, and a living wage is about $15 an hour. The majority of Latinos and African-Americans make less than that and more than 40% of the population as a whole. In other words as long as the gap between the rich and the poor continues to widen, home ownership will go down. I hope that changes, but it probably won’t in the next four years.

    • Geezus. The minimum wage argument strikes again. Wages go up…..so do cost of goods, rendering the minimum wage useless. Hey speaking of low inventory, if we sent these people back to their home country where they came from maybe there would be more inventory for US citizens? Maybe we should take up a law like Mexico has that only allows US citizens to buy property and there would be more inventory and a lower cost of entry into the housing market?

      • Mike C.

        even when wages stagnate the cost of goods go up.. i guess we should continue letting the ceo’s pay sky rocket while the workers just try to get by.. or maybe by raising wages some of that extra profit would make it to the middle class instead of boss man’s hoard?

      • Mike C.

        and if we send these people back where they came from.. good luck being able to afford groceries since no one will pick the foods at current costs.. same with all the restaurant employees.. cleaning and landscaping.. jobs americans don’t want to do.. oh and unless ur native you would be leaving too..

  5. Tony G.

    Gotta love it when someone forms an opinion on a stat and then tries to explain it. Stats a can be used in any way to forward an opinion, even when wrong. That how the fake news orgs work today. Why is home ownership lower? Immigration. There are more people in this country today than ever whether legal or illegal. And along with H1B40s they either can’t afford a down payment or have no interest in buying and are sending money back home.

  6. Ron Gosling

    Seems the article was thrown together at the last minute to meet a deadline because very little is said, much of it arbitrary and most of it is opinion.
    Who is the Senior Economist at Wells Fargo Securities and what makes him qualified to make three general statements that are very much BS?
    Please name a generation who lived through a period of economic security. The nature of the unknown and the future makes things uncertain. I don’t personally remember a time in the past 30 years where we didn’t have global turmoil and WWIII wasn’t lurking around the corner.
    Since when is knowledge the same as information. Future generations may have access to information greater than anytime in history, but little of it is considered knowledge. What Kim and Kanye did in Barbados last weekend, to me is considered information rather than knowledge. I’m still pondering how you made the leap from knowledge to the fear of homeownership in the same paragraph.
    Making the comparison between Millennials and their nomadic lifestyle and desire not to hold down a ball-and-chain mortgage doesn’t jive with other nonsensical surveys of Millennials who live in their parents basement until 38 yoa, drink $9 designer cups of coffee and line-up weeks in advance to buy the newest yearly version, of the next, highly overpriced, must be the first to have, a mortgage needed to have to pay for, iPhone.
    My head is starting to ache due to analyzing the paragraph linking the inability of homeownership to the newest whim of traveling as economic security. Kudos for writing the article in the first place but for someone who puts out an article every few days for BP, this was far from your finest work and the piece should have been butchered by a Bigger Pockets Editor.

  7. Michael Woodward

    There were a couple key events that lead to the recent real estate collapse. I don’t believe that the historic American home-ownership mentality has fundamentally changed. I think what we’re seeing with rentals right now is just the healing phase and ownership will return to its historical balance once the shock waves of the recession subside. I’m concerned though that this run-up in rental properties is creating a new mini-bubble that will create more havoc down the road. ….. here’s the way I see it.

    1) Too much money fled the stock market in the mid-2000’s and sought shelter in real estate. This movement by the “herd” toward real estate created a runaway cycle of speculation that fed off itself until it could no longer be supported. The market tipped and started a downward cycle proportionate to the over-inflation (a lot!).

    2) The incoming president came into office at a pivotal point in our economy. If he had adopted policies that helped to ease market fears and helped the economy recover, then we would have seen a deep trough followed by a return to balance. Instead of doing that however, he implemented a radically different economic plan of big-government intervention that included many new restrictions and burdens on businesses (i.e. socialism). This created enormous stress and uncertainty at every level of our economy which is always the recipe for stagnation, recession, or depression of the economy. The ultimate result was some of the worst unemployment and economic stagnation in American history.

    Hopefully now we’re finally on the road to a sustained recovery.

    • Katie Rogers

      Actually the worst unemployment and economic stagnation preceded Obama. Today, some eight years after the worst financial crisis since the Great Depression as Obama took office, the nation’s job market has put nearly six million Americans back to work, as a net gain. That includes 156,000 jobs created in December, according Friday’s Bureau of Labor Statistics report, the last with Obama in the White House.

      The restrictions and “burdens” did not happen because of “socialism.” They happened because so many businesses are bad actors. Businesses look forward to the lifting of “burdens” so they can return to their exploitative ways. Adam Smith himself said that for capitalism to work, it would need to be “highly regulated.” He knew that without tight regulations, workers would get abused, and that price collusion, monopolistic tendencies, environmental abuses of the commons would all game the system over toward those with the capital.

      In the wake of the global financial crisis, other countries took the “austerity” route, and we saw what happened. It did not work very well. I do agree that there seems to be uneven economic recovery in America. It reminds me somewhat of Japan in the 1970s and 80s where the national economic indicators were quite good, but the individual people did not experience those benefits in their own lives.

  8. Spencer Liddic

    Sterling, great article, I always enjoy your pieces.
    This article hits home with me as I currently own and manage over 20 units but rent my primary residence. I live in NYC where the numbers don’t work for me to own so I rent here and invest in my hometown in Pennsylvania.

  9. Lisa Weathers

    I purchased my home at 24 and had it paid off at 40, so I’ve been without a mortgage (or rent) for almost 5 years. While Millennials and others talk about the freedom to easily move, I prefer the financial freedom I know have. I have never once regretted becoming a homeowner at an early age.

  10. Gloria Almendares on

    Michael Woodward, what recent real estate collapse do you mean? I live in Hi, and have not experienced a real estate collapse except during 2008 when the sub-prime market collapsed, due to rampant “mortgage fraud” as the result of deregulation. Today prices of home have skyrocketed in Hi. Whoever is a homeowner will come out ahead, whoever is a “tenant” will surely not come ahead, because now interest rates are still low, even if houses are high, it’s a “no brainer”, if you have to move, RENT YOUR PLACE. You will have many tenants applying. Owning your own house is no comparison to being a “tenant”.

  11. David Mayeranderson

    Affordability, yes, the starter homes prices have far outpaced the growth in income. Freedom, yes, but the issue of restricted access to credit is a giant myth. Sure, lenders are doing more than the “are you breathing” test for qualifying for a mortgage, but with so-so credit and 3-5% down, you can get a mortgage with a credit score of 620. Also, there are no down payment options for VA, rural, and some moderate income households who qualify for down payment assistance programs.

Leave A Reply

Pair a profile with your post!

Create a Free Account

Or,


Log In Here