ATLANTA (FOX 5 Atlanta) – Across metro Atlanta, a huge number of apartments and condominium units are being built, and it seems like it can’t happen fast enough.
Demand for rental homes and apartments in cities across the United States is skyrocketing, when many expected the opposite.
Many assumed rental demand would plummet as Millennials entered their home-buying years. Unlike baby boomers, Millennials (and to some extent Gen Xers) have witnessed firsthand what happens when home values drop dramatically for an extended period of time.
Their confidence in home ownership may have been shaken by the financial uncertainty of the Great Recession, when many lost their homes to falling prices and job losses.
Demand for apartments in the second quarter of 2019 jumped 11% nationally from a year ago. This nationwide phenomenon reflects the preference of many people approaching adulthood for the flexibility of renting as opposed to the long-term commitment of buying a home.
Switching to home ownership from renting has long been seen as a ‘milestone’ in the lives of post-war generations, but it may no longer be the norm
This strong preference has driven rents up an average of 3% nationally to $1,390 per month, according to RealPage, a real estate analytics firm. Atlanta’s rent jumped 5% to $1,382 but still remained slightly below the national average.
Renters don’t have to make many years of large monthly payments and don’t have to worry about a possible drop in the value of their home. Plus, renting brings no lawn mowing or gutter cleaning, no maintenance or repair costs, and no uncertainty about tax increases.
Despite the increase, a record 82% of renters say renting is more affordable than owning, according to a new survey from Freddie Mac, up from 67% just a year ago.
While pundits may argue among themselves about which choice is best for a certain individual, consumer experts have long viewed homeownership as one of the keys to long-term wealth accumulation.
Home ownership is by far the most powerful driver of wealth creation in the US economy. And wealth matters, a lot. Buying a home serves only as a forced savings plan, an inflation hedge, and a place to live.
Millennials have shown a tendency to prefer flexibility and often choose to rent an apartment over buying.
The Pew Research Center has studied millennials extensively and found them more likely to delay household formation, often living with their parents beyond the traditional young adult years.
Similarly, millennial couples often express a desire to marry but are more comfortable than previous generations in delaying a formal marital union in favor of a more casual arrangement.
Student loan debt and the cost of childcare are major factors preventing purchase.
Financial readiness is a real issue for many millennials as they approach the home buying market. If they’re struggling with student debt and haven’t been able to save a substantial amount for a down payment, it’s hard for them to buy a home, even if they want to.
The growth of sites like Airbnb is taking investment houses out of the rental market.
Many investors have moved their homes from the traditional rental market where tenants sign a lease for a year or more to the vacation market, where monthly rental income can be significantly increased.
This trend has generated complaints among neighbors, but makes economic sense for enough investors to have a significant impact on the availability of long-term rentals.
FNMA/FHLMC restrictions on lending for rental homes make it difficult for investors to add inventory.
Under current regulations (implemented under the Obama administration), government guaranteed financing is limited to a total of four homes with single borrower loans. The previous limit was ten houses.
The Bottom Line: Only time will tell how popular renting will be in the future versus the more traditional route to home ownership. And all of this is playing out even as the Federal Reserve prepares to cut interest rates for the first time in years. Watch for home mortgage rates to fall below four percent on 30-year fixed rate loans.