The United States has been living the American dream of home ownership since roughly the end of World War II. Obviously, there were homeowners before then, but the end of the war brought a surge of homebuilding, prosperity and buyers anxious to get on with their lives.
Many of us were raised with the assumption that we would eventually own a home of our own, and for the most part, that was true. However, many have reset their priorities, and a large portion of the population is remaining renters, a significant shift in our culture.
In my view, this is happening because of a combination of lifestyle and finance. Almost always, two people in a relationship or singles work full time jobs, even if they have children. In addition, so many people are self-indulgent and owning a home with all of the financial and maintenance negatives attached to it may not fit their desired lifestyle.
There are, however, plenty of people who want to buy a home, but the numbers aren’t working for them. We have had a slight dip in interest rates for mortgages, but it’s not enough to justify giving up the freedom and flexibility of renting.
For example, let’s assume the average rate for a 30-year, fixed-rate mortgage is 6%. If you are able to find a home in Manatee County for $500,000, which in this market is difficult, and are in a position to put down 20%, you would be looking at a $400,000 mortgage. The monthly payment at 6% is $2,398 not including property tax and insurance, which I would estimate to be at least another $600 a month, totaling about $3,000 a month, not including home maintenance.
The benefits if you own your own home are that you will accrue value by paying off your mortgage and enjoying appreciation and a possible tax advantage. Certainly, if you plan on living in your home long term, typically at least five years, which is considered the break-even point, buying will work to your advantage. Owning your own home has always been the major vehicle to build wealth for the average person.
Zillow tells me the median rental in Bradenton is $2,500.
Every potential buyer has a different scenario. Not everyone has $100,000 available and putting down a smaller amount would increase the mortgage, carrying charges and also adds private mortgage insurance (PMI) on any home purchase putting down less than 20%.
This makes renting even more attractive and encourages people to remain in their rentals. Renters are choosing to stay put; 62% of renters renewed their leases in the second quarter of this year, up from 60.5% a year ago. Even with rents going up and in short supply especially after the hurricane damage this year, some people may still calculate that renting is better for them than owning.
I have always been a pro-homeownership person; that’s what I was taught and what I learned in the many years I was involved in the real estate market. But I’m starting to believe that we are in the middle of a shift in philosophy relative to lifestyle and home ownership. If that’s true, it makes me really sad and puts a huge dent in the American Dream.
