It’s no secret that homeownership rates are the lowest they’ve been in decades. Historically, around 40 percent of all home purchases in any given year were made by first-time homebuyers, but today that number is closer to 30 percent. The reason behind this shift is complex, and based on a combination of factors including stagnating wages, more variable career arcs, increased debt and poor credit. Regardless of the reasons, this ongoing trend makes it a great time to invest in single family rentals.
First-Time Home Buying is Plummeting
Millennials make up the demographic that traditionally constitutes the majority of first-time homebuyers but there are a number of factors that are keeping them from buying.
- Debt – Millennials, as a generation, have a significant amount of debt, much of which comes from student loans. This means that for many of the 18-34 year olds in America, even if they want to buy a home, the odds of locking in a good interest rate, or being able to cover the down payment on a property is slim.
- Fluidity – While employment levels have been increasing across most sectors this year, job prospects are more varied than during previous periods. According to an article in the Atlantic, millennials are less rooted to their current careers and surroundings than in previous generations. This means that those would-be first-time homebuyers are likely to follow their jobs, rather than settle in one place for an extended period of time. Therefore, buying a home isn’t considered a practical decision.
- Delayed Household Creation – Immediately following the recession, household formations were delayed for a number of years, but we are beginning to see a reversal of this trend. This doesn’t mean these new households are looking to buy. Despite decreasing homeownership rates, millennials are beginning to get married and have children, yet independent research suggests that many will continue to rent. While there is an idea that millennials gravitate towards urban centers with luxury amenities, as they begin to start families, they will move towards suburban areas and single-family homes. After all, just because homeownership rates are declining among this generation, it does not mean that the amenities provided by single-family homes are ones they eschew.
Homeownership Rates Also Decline in the Boomer Generation
So we’ve established that homeownership rates in younger Americans aren’t going up, but what about their parents? It turns out that baby boomers aren’t aspiring to own homes either. According to an article in CNBC, renter growth is on the rise with married couples in the boomer generation. They account for twice the share of renter growth as households under 35.
In fact, many who owned homes are choosing to downgrade to rental housing because they just want to downsize, desire greater financial flexibility, and avoid the hassles of homeownership and maintenance.
Household Formation Fuels Renter Growth
Renter growth and homeownership in general is fueled by household formation. During the recession, household formations dropped, but in the year-long period ending in June of 2015, 1.3 million new households were created. An independent study found that many of these new households were created by those in the 55-74 year old segment, with the next largest being those in the 55-64 bracket. All of these new households need a place to call home, since they aren’t buying, many are turning to rental housing.
This increase in demand for rentals has translated into higher rental rates and, in turn, an increase in ROI for investors. In fact, according to MarketWatch, rents are outpacing inflation and home appreciation in most areas. All of this simply means that now is a great time to take advantage of this historic change in home buying trends.