Friday, October 18, 2019

The Rise of Renters

The article in the WSJ earlier this week is just one of several recent ones talking about renters in a totally separate forum than the Rent Control concerns.There is more to the rental preferences that need to be addressed by real estate professionals, especially those who do not deal with helping renters for commission.

Some cities are showing a decrease in the cost of rentals, while some age groups are showing a stronger preference to rent rather than buy. What these separate trends show is that more than just the monthly cost is factoring in to the decisions people are making when it comes to renting.

To put it less diplomatically, the real estate professionals that say "You are crazy to pay rent instead of owning" are going to have to come up with a stronger argument to support that claim.

In many areas of the country, home prices have still not returned to the levels they were at prior to 2008. Those long time home owners don't care that, for example, home sale prices in their neighborhood "increased 3% per year for each of the past five years". Those owners will tell you that the 15% "increase" still leaves their home value below the 30% decrease suffered from the crash of 2008. 

Consequently, many long time home owners still do not see enough appreciation in the value of their home over the years to justify selling. Let me put that a different way. If they were to sell, it's really about justification of buying again. 

With the real estate market staggering in many cities, even the most recent to become home owners are not "assured" of appreciation and an increase in the value of their home even by doing only the most basic of maintenance. You could say it's not your parents' home ownership anymore.

While some real estate professionals remain in denial about this, the point is that they need to come up with more solid reasons why renters should be buyers.

More and more home owners are not seeing enough of an increase in the value of their home to consider a mortgage as an "investment" that will pay off for them some day. 

Consequently, they see renting as having more advantages. They do not have a commitment to a property from five to thirty years (length of mortgage) to worry about. There are not thousands of dollars in property taxes, dealing with home owner association decisions and fees, and in some cases, a lot less time and money spent on routine maintenance.

Having the ability to move within a matter of weeks or months due to family, school, or career issues also comes with renting. 

Renters, whether apartment or single family homes, can have the location and amenities they desire, and without having to come up with thousands of dollars for a down payment and the commitment of a mortgage which follows.

They feel like they are working for themselves and not the bank or mortgage banker. If life happens and they can't afford where they are at, they can end their lease within a few months and relocate to what they can still afford.

This is much different from 25 years ago when they could purchase a home, stay for five to seven years, sell for a profit, and then rinse and repeat.

Given the rising number of people in their 20's and 30's who still live or who have returned to live with their parents, adding them to the mix shows that there is a much stronger need to "sell" the overall benefits of home ownership.

The next time a real estate professional tells you "It's crazy to rent instead of own", you need to ask them why they say that. He or she needs to "own" a much stronger response.

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