By: Nathan Metheny, Managing Principal/Co-Founder
For decades the American Dream consisted of home ownership, but is this still the case? Statistics show that the American Dream now involves rent rather than a mortgage. From 2006-2016 the renter rate rose 5% and does not show signs of slowing in the distant future. This places the total households that rent at a lofty 36%, far above all historical numbers. Below are the major reasons that the U.S. is transforming into a nation of renters.
Large Down Payments
According to a recent survey, 60% of Americans don’t have enough savings to cover a $400 emergency expense. A conventional mortgage requires a 20% down payment. The median sales price for an existing home in the U.S. is just over $258,000, placing the needed down payment at $51,600. Also, once factoring in the closing costs of an average 2%-6% of the sales price, the down payment can reach as high as $67,080. If 60% of Americans cannot afford a $400 emergency expense, they will be hardly capable of paying for an expensive down payment, forcing the majority of the population to remain renters.
A large down payment is considered the first battle front for many. For the younger generations, two fronts are being faced; the second being student debt. As of June 2018, Forbes reported that total US student debt was $1.52 trillion and 44.2 million people owed debt. The average debt per graduate is $38,390. If a graduate took the standard repayment plan for the $38,390 borrowed – 10 years, at 4.29% interest rate – they would be paying $390 per month for the next decade. This debt, along with high rental rates, makes it nearly impossible for graduates to save for a large down payment.
Adding to the large down payment and significant debt, 70% of Americans reported to be overwhelmed by the home buying process. An average timeframe of purchasing a home can easily take upward of 3 months depending on the state, loan type, and contingency factors. The combination of a large down payment and overwhelming process can certainly be daunting. In comparison, renting an apartment can be done in within a matter of days.
Millennials, born between 1981-1996, have been affected by the Great Recession in many ways. The majority have experienced a slow start due to entering the job force amid a recession. President of the Pew Research Center, Michael Dimock, said the recession’s effect on Millennials, “will be a factor in American society for decades.” This slow start, along with technological advances and student debt, are causing what is being considered as a widespread cultural shift. The young renter base is primarily focused on flexibility. Flexibility is being viewed as a must because while the older generations have always valued home ownership, the younger generations prefer to allocate their spending on travelling and experiences.
Within the older generations, the consensus has always been to have a single job for the majority of your career. As the workforce and generational preferences evolve, differences in patterns emerge. In contrast to the single job once preferred, Americans now change jobs an average of 12 times throughout their career. Rather than owning a home, renting provides the flexibility and freedom to easily and quickly relocate.
A renter nation is not only becoming the new description of the American Dream, but it is clearly here to stay.With the help of Wealthrise, you can make use of the renter nation. Sign up for our monthly newsletter to learn more about the benefits of real estate investing and the many ways that you can get involved.
About the Author: Nathan Metheny is Co-Founder and Managing Principal at Wealthrise. In this capacity, his primary roles include acquisition supervision as well as setting the long-term strategy and trajectory for the company.