Once upon a time, homeownership was the central facet in the American Dream. Purchasing a home was also the single largest expense most people would undertake in their lifetime. In recent years, many younger people have been shifting away from traditional homeownership in favor of renting.
Without a doubt, homeownership is in decline. According to a 2017 report by Pew Research, there are more U.S. households headed by renters than at any point since at least 1965. Higher home values, student loan debt and lingering effects of the 2008 housing crisis and recession are the primary financial elements in play.
High Home Prices
Between August 2017 to August 2018, Phoenix home prices gained 7.43 percent in value, outpacing the national average of 5.5 percent year over year. According to online real estate database Zillow, the average home value in the Phoenix market reached $231,200 by the end of September 2018.
Student Loan Debt
Federal Reserve researchers say the high cost of college could be responsible for about 20% of the decline in homeownership among young adults. More than 44 million Americans have student loans, with an average of $33,000 in debt each. This student loan debt has a tremendous impact on every aspect of their finances, too. A recent article by Student Loan Hero showed that on average, Millennial households with student loan debt have:
- An average net worth of $29,087, compared with $114,376 for student loan-free households.
- 46% less in their savings and checking accounts (median balance of $5,500 vs $10,180 for those without student loans).
- $21,160 in retirement savings versus an average of $39,905 for those with no student loan debt.
High Credit Card Debt
According to Northwestern Mutual’s 2018 Planning & Progress Study, millennials aged 25-34 have an average of $42,000 debt. The biggest source? Credit cards. The tightening credit market means that already overburdened millennials may have trouble getting a traditional mortgage due to lower credit scores and higher debt.
For Millennials, Lifestyle Matters
Lifestyle considerations also appear to be major drivers of this dramatic shift away from homeownership in favor of renting. This is especially true within the Millennial demographic. Today, more Millennials are choosing to rent specifically because it offers a more-flexible lifestyle. Millennials are renting for the mobility, convenience and community features associated with renting. The ability to quickly relocate to take advantage of a new opportunity is a major consideration for individuals just entering the workforce or building careers, making renting all the more attractive.
Convenience is also a major factor in choosing to rent over buying a home. The benefits of no landscaping, pool care, yard work and home maintenance make a very attractive alternative to tackling a bunch ‘do it yourself’ chores or having to hire someone. But that’s just one aspect of convenience. Millennials also love living close to arts, culture and entertainment venues, so living in an apartment that’s located in a vibrant urban environment is going to win over the little house in the suburbs, every time.
Community is another deciding factor for Millennials. Today’s modern apartments are light years away from those available to their parents and grandparents generations. Today, apartments feature a variety of luxury amenities specifically designed to foster a sense of community among residents, and create organic opportunities to make new connections. From the convenience of an on-site fitness center to the camaraderie of resident happy hours, movie nights, cooking classes and other activities, shared common spaces and community experiences found in rental communities are the preferred choice of the Millennial generation.
Transportation and accessibility to public transport are also considerations. As people’s lives become busier, the prospect of making a long daily commute becomes even less desirable. Living close to work or within easy access of public transport helps people avoid traffic jams and achieve a higher quality of life. For instance, the Phoenix Valley Metro Light Rail system’s 26-mile line links Phoenix to the neighboring communities of Tempe and Mesa, and includes stops at attractions like the Phoenix Art Museum, the Heard Museum, Chase Field, Talking Stick Resort Arena and Tempe’s Mill Avenue District. The cost? Just $4 for an all-day pass.
Lifestyle, flexibility, convenience, community, public transport and amenities are all great reasons to choose renting over buying. No matter what reasoning, it’s clear that the American Dream is in a transformative shift. With nearly 6000 new apartments slated to be built over the next year in Downtown Phoenix alone, for 2019, the city will remain one of the hottest real estate and rental markets in the nation.