Rent Eats Millenials Earnings…
As would be expected, there has been lots of news on the real estate front since the last newsletter. The headline of the OC Register was all about Millenials’ rent! Simply put, the
frugality and the desire for value of lifestyle, may eventually win out over the “rent don’t buy, live loose” lifestyle that seems to be a mainstay of this generation, simply because it makes more dollars and cents, sense, to buy rather than rent.
Nationally, the historic numbers are startling as previously renting took up 25% of income to 21% for owning, and the market of today is drastically different; try 28.9% of your income to rent, versus just 15.7% of your income to buy. There are many reasons for this, primarily of course, the unusually low interest rates and the ability to lock your payment in for 30 years, may become to great a temptation for the thrifty generation that defines the Millenial. Seemingly at war in their personality is the desire to not be tied down by material obligations like their parents were, with the fact that maybe, just maybe, when it comes to housing, their parents got it right.
Butting up against all this right now, is a short supply of entry level homes, and rising interest rates. There has been speculation that rising rates will trigger a bubble effect and cause pricing to plummet, but according to a Freddie Mac article seen in the Blog, Keeping Current Matters, this seems unlikely. First of all, there aren’t enough homes available to wash the market out, second of all the job market is strong, and it is loss of jobs that truly cause a collapse in the market and finally, all loans for the past 11 years are full documentation, fully vetted an qualified borrowers. Simply put, people can afford their homes. But it is unlikely that the market can bear much more growth in appreciation without seriously damaging the affordability index. So when that becomes too tight, and buyers stay away, that is when you will see a normal cyclical change in the market, which could very likely be punctuated by slightly falling prices. But then again…who knows? My crystal ball is on the blink!