The more I get into the rental property business, the more I think about real estate. That’s great, because I love it. There’s a massive rental demand in Detroit, and with houses so cheap I don’t quite understand it. Surely, if you can pay $900 per month in rent you should be able to afford a house for $40,000-$50,000, right?
But I’ve dismissed this, figuring maybe people don’t have the credit score to qualify for a mortgage, lack the discipline to save for a down-payment (although FHA loans allow for just 3% down), or can’t hold a steady job long enough to show an ability to make monthly payments.
These are all potentially very viable reasons. But what if fewer people simply aren’t wanting to be home owners. According to FRED, that seems to be the case:
The US home-ownership trend has clearly been heading lower since the peak in 2004, but you could argue that the ownership rate was artificially high due to low lending standards, and it’s simply been equalized in recent years after a big price adjustment.
Perhaps that’s the case.
But when I read articles about Amherst Holdings’ Main Street Renewal, it gets me thinking. If you’re at all interested or involved in the rental market, you should give the full article a read.
But the TL;DR is that they operate a single family home rental investment firm that currently owns 16,000 houses. They’ve leveraged technology to filter listings, bid on them automatically, and then lean on their scale to rehab and outfit the homes cheaper than an individual buyer could.
This isn’t too far from what Zillow and other companies are doing. They buy homes, do light rehab work, and resell them. It’s not a far stretch for these companies to start getting into the rental business themselves.
The real question on my mind is whether the desire to own a home has changed. The jury is still out on that as we look to millennials. Some believe they’ve (technically “we”, I guess) simply delayed home ownership much like they’ve delayed marriage. Or perhaps they simply can’t afford it. I’m not sure I buy either argument.
And at what point does it become clear that the next generation of would-be homeowners aren’t simply delaying it but truly don’t desire it? I’d imagine it’s sometime in the next 5-10 years.
And if the desire to own a home truly is disappearing, it’s an unfortunate one. Homes may not necessarily be investments (although they certainly can be), but they do come with many advantages including tax benefits and a guard against inflation. If you’re renting you’re always on the wrong side of inflation as your rent will increase over time.
If the next generation is having a hard time saving for retirement, they’re really going to have a difficult time if they also opt not to own their home.