Today’s real estate market changes seemingly by the month, and savvy investors have a vested interest in learning about the market – especially the identity of people who choose to rent instead of buy. According to a recent infographic covering the topic, average rental rates have surged in the United States by over 60% over the last three years. Over the same time period, home prices have declined by roughly 46%.
Clearly, many individuals are choosing to rent versus buy. For real estate investors looking for the right direction, a careful analysis of these numbers and other data is important in order to highlight the right course of action.
More People are Choosing to Rent
First, a look at the data shows that more people are electing to rent in this economy than buy – not terribly surprising to most people who have followed the decline of the American real estate market since the housing bubble popped in 2007.
One of the main reasons – if not the reason – is the instability of today’s real estate market. Would-be buyers simply are not sure where prices will go and – more importantly – when they will recover. In addition, many would-be buyers choose to rent because they simply do not have the time or the access to educate themselves on the market – a market that appears to be incredibly complex. That doesn’t mean they do not want to buy, of course; a recent survey found that 59% of renters think today is a great time to buy, and approximately 53% of renters would prefer to purchase a new or existing home.
For the reasons explained below, though, renters choose to go with renting instead of purchasing.
What Drives People to Rent
In essence, renting has several advantages in today’s market over buying (at least according to the perspective of renters who have decided to not buy or weren’t able to). Renters do not have to maintain a rental property as they would a home, and there is no market risk. If home prices go up or down, renters are not impacted and their rent stays the same for the rental agreement.
There are also no property taxes or homeowners’ insurance (or, today, private mortgage insurance) to pay. In addition, renters do not have to save up 10% or 20% for a down payment, and do not have to undergo a slew of tests and checks in order to be approved – in most cases, a simple credit check will suffice.
This means renters today are people who:
See renting as a smart financial move in that it is less expensive to some
Do not want to put money into a long-term investment
Cannot purchase a home due to poor credit or tight loan requirements
Have lost their home to foreclosure
The last two groups are particularly averse to owning a home right now, and bear further consideration.
Former Homeowners Turned Renters
A growing portion of renters is comprised of people who either went through the foreclosure process and lost a home or cannot purchase a home even if they wanted to due to no savings for a down payment or poor credit. (Websites like ForeclosureDeals.com, online directories of foreclosure properties throughout the United States, are testament enough to the fact that thousands of foreclosed homes are currently sitting vacant). Additionally, others similar to them are unsure of the market and do not want to risk being burned by today’s real estate market.
These renters have actually owned homes before and understand the value of homeownership. As a matter of fact, 73% of renters believe that homeownership is important to the American economy – an intriguing statistic, particularly considering the fact that homeownership is, for now, out of their reach.
These factors and more are important to understand for real estate investors who want a firm grasp of current market fundamentals – including why so many people are buying, and who exactly they are.