Should you rent or own your home? When it comes time to choose where to live, this is a question that many young people have asked themselves for generations. Millennials have built a reputation as unpredictable home buyers, but let’s consider the available data.
These days, data indicates that millennials are more likely than ever before to rent instead of buy, according to a 2016 poll by the Pew Research Center. The poll found that only 22% of millennials in 2016 had bought their own home; in comparison, 35% of early baby boomers in 1981 bought a home, and 34% of Gen-Xers had bought a home in 2000. Why is this? We think we can point three major reasons why millennials are renting in big numbers:
The Great Recession
The last recession only lasted from roughly 2007 to 2009, but it was a big one that affected most Americans. The effects of the recession lingered for years as people lost billions of dollars in equity, homes foreclosed and credit scores were ruined. Millennials got through high school and college and entered a rough labor market with high unemployment, more student loan debt and limited income opportunities. All of these factors made it more difficult for millennials to afford to save for a down payment and closing costs to buy their first home.
The recession also had a substantial psychological effect on millennials. They saw how their parents were affected by the economic downturn. For some of them, they saw their parents’ home foreclosed on and many other financial difficulties. For some millennials, this gave them a negative feeling about owning a home, right or wrong.
Putting Off Marriage and Children
According to a 2013 Gallup poll, millennials do want to get married and have children, but they are more likely to put it off into their 30s. More millennials are putting off getting married until they are earning more money and are further along in their careers. Many millennials feel less pressure than past generations to conform to a traditional ‘married with children’ lifestyle, and this may cause them to delay buying a home.
The Housing Bubble
Before the Great Recession hit, the housing bubble inflated as mortgages were too easy for millions of Americans to get. Both Democrats and Republicans to some degree thought owning a home was a right. It isn’t: Owning a home is a complex and important financial decision that is not for everyone.
When too many Americans had mortgages they could not afford, there was a huge number of mortgage defaults that led to a crash in home values. All of the speculative lending activity that allowed mortgages to be handed out like candy to non-credit-worthy borrowers crashed to a halt.
There were millions of foreclosures, and later, it became much harder to get a loan for a home. This made the values of homes decline further. Plus, millennials had more student debt than in the past, and difficulty finding good employment made it harder to prove under tighter lending standards that they had the income to pay a mortgage reliably.
Renting Can Beat Buying a Home in Some Cases for Young People
Even after the last recession, approximately 63% of Americans own their own home. For many people, buying a home is a good thing. It gives you stability, builds home equity and you can write off a lot of your home related expenses on your taxes. But for many young people in this generation, renting a home or apartment fits their lifestyle. According to a Rent.com survey in 2017, almost eight out of 10 of the 1000 millennials surveyed found they were not planning to buy a home for these reasons:
- College graduates today owe more than a trillion dollars of college loan debt, so there is a reluctance to take on mortgage debt on top of that debt. Also, buying a home involves closing costs, down payment, mortgage insurance and homeowner’s insurance. Renting is a cheaper option in the short term.
- Renting a home or apartment usually means you can move every year or two with ease once the lease is up. Even breaking a lease usually does not cost more than a few hundred dollars. Many young people like the idea of being able to easily move to another neighborhood or city and not being tied down with a home and mortgage. Many millennials also saw in the last recession how their parents were stuck with homes they could not easily sell.
- Landlords handle repairs. When you are younger and making less money, the costs of owning a home can be intimidating. Between upkeep, repairs, doing the lawn etc., owning a home can be expensive. When you are renting a home or apartment, most repairs and maintenance is handled by the landlord. For millennials who want to have money to enjoy their free time, it can make more sense to outsource maintenance costs to the landlord.
It is common for a lot of younger people to rent rather than buy. But the millennial generation, the data shows, is even more likely to have a landlord than a mortgage. Perhaps this will change as they get older, but for now, many millennials are enjoying renting where they live instead of buying.
References: Why Millennials Are Renting More. (2017). Retrieved from https://www.goodcall.com/moving/millennials-renting-works/ and How Millennials Are Changing the Housing Market (2017) Retrieved from https://www.nationwidemortgages.net/millennials-housing-market.html .