As I get older, I am learning to respect a lot of those old adages I used to hear growing up. One in particular struck me this morning - "the more things change, the more they stay the same." Look at 1965 as an example. 50 years ago we were mired in a complicated war, racial tensions were brewing and the Rolling Stones were on tour. Sounds like 2015 doesn’t it? But the similarity doesn’t end there. Homeownership levels are also the same - and not in a good way.
A report from Reuters “Many Americans struggling to keep up with sky high rents: study” quotes "The lingering effects of the housing market collapse, which have seen the homeownership rate falling to levels last seen in 1965, and better employment prospects for Millennials, have fanned a rental market boom.” Adding “Record numbers of U.S. renter households are spending more than 30 percent of their income, and in many cases more than half their income, on housing costs” (By the way, the general rule-of-thumb is that housing costs should not exceed 30 percent of a household's total income). This all comes from the recent Harvard Joint Center for Housing Studies biennial report on rental housing.
Looking at the chart below there have been many factors over the past 50 years that impact housing. The big differences between today and 1965 are (1) that Interest rates are at an all-time low (even when/if they do go up soon), (2) construction starts are down and (3) we have over 100M more people! That last point translates to about 50M more people or 120M total that do not own a home today (vs about 70M non-homeowners in 1965).
So, with rentals at record high and homeownership at a historic low (along with low interest rates and housing starts), when does this all change?
Millennial expert Chelsea Krost hosts shows and spurs countless content about millennials pointing to how entrepreneurial, generous and somewhat conservative they are with their money. Rightfully so. They have grown up in a time when crazy financial “things” happened (many we still can’t grasp) while personally witnessing the destruction of homes and wealth. Something needs to change, but the direction hasn't really been clear and that bad taste of the meltdown still lingers. So, what do we all do? We learn from another adage that “home is where the heart is” and we travel and explore the world to find a better way. We go to shows, hang out with friends and make new experiences. In the meantime, we are burning through money - leasing life one day at a time.
As bleak as it all sounds though, we all needed this reset. The past 8 years since the crisis have provided an opportunity to look at homes with a fresh set of eyes - Injecting fairness, flexibility, transparency and much needed technology into a pretty stagnant homebuying process. New options like auctions and all online mortgages along with more consistent disclosures and affordability programs have solved many of the needs of the modern homebuyer.
One remaining thing that hasn’t been addressed though is the more emotional of the equation. The best, most rational deal in the world can’t overcome a gut feel or fear. Our recent ValueInsured survey found that 9 out of 10 millennial renters do want to be homeowners. But their American Dream is different than their parents. They no longer expect to be in a home for 30 years. 90% want a home, but learning from the crisis, it has to be fair and come with flexibility and greater control. They need to be able to take that next job, grow into a bigger family or move across the country - whenever they want to - not just when the market is right. A house, even if more affordable than renting (15% vs 30% of income per Zillow) sometimes feels like a burden. So, they want to own a home but they don’t want a repeat of what happened almost 10 years ago. Down payment protection solves that. It gives the modern homebuyer they comfort they need by providing similar protection the banks have had for years - protection we didn’t know we needed until the meltdown proved otherwise.
So, yes, while some things seem to not have changed since 1965, we have as modern homebuyers. The millennial-mindset has taken hold (aren’t we all really millennials these days?) and the American Dream has evolved. It’s a good thing to expect fairness and more control over our homes and our lives. Change is an evolution and I am optimistic that in 2016, as new homebuying innovations make it to market and construction picks up, that the 90% of renters that want to be homeowners and all the other modern homebuyers will feel better getting off the sidelines and into their version of the American Dream.