It’s like a tale of two Americas – one where people have paid for homes, and another where they can’t even start mortgage payments to own a home.
That first group is mostly comprised of baby boomers, while the other is generally made up of millennials and Gen Z. However, according to the Daily Mail, more Americans are giving up on home ownership altogether to “rent forever,” and some reports show it might be a good idea.
In April, USA Today reported that it is officially a better option financially to rent than to buy in bigger cities. This week, MarketWatch also confirmed that renting is the best way to go in larger metropolitan areas.
A study released by Bankrate earlier this year found that 78% of Americans still consider owning a home to be part of the American Dream. Yet, the economic reality of home ownership has made that dream less rosy, and in some cases a nightmare due to unforeseen costs such as home repairs.
“Homebuyers today are being priced out of a market with low inventory, high prices and high mortgage rates,” said Bankrate. “To make matters worse, their financial concerns aren’t necessarily over when they get their keys. Nearly half (47%) of current U.S. homeowners have a regret about their purchase, according to new data from Bankrate’s April 2024 Homeowner Regrets Survey.”
While some people are struggling to get homes and others regret their purchases, a significant potion of Americans are actually living in their homes mortgage-free. According to a report published by Fast Company Friday, a record-breaking 38.5% of homeowners don’t have a mortgage at all. In addition to that figure, 96% of mortgage debt in the U.S. is fixed rate.
“Despite experiencing the fastest Fed rate hike cycle in four decades, the U.S. economy has proven more resilient than in past economic cycles. One reason some economists believe this resilience exists is the greater buffering homeowners now have from spiked interest rates,” Fast Company explained.
It said that from 2010 and 2022, the share of owner-occupied homes without a mortgage increased from 32.1% to 38.5%. This spike aligns with baby boomers entering their senior years, and over half of the homeowners with paid-off mortgages are baby boomers.
“The fact that many U.S. homeowners have no debt at all means that if they need to sell and buy a different home, they might be able to roll over the equity, buy it in all cash, avoid spiked interest rates, and avoid having to cut back on their discretionary spending, thus keeping the economy warmer,” said Fast Company.
In an effort to bring down inflation, the Federal Reserve Bank has been increasing interest rates. As Fast Company explained, the fact that many home owners didn’t feel these rates meant that they had a limited impact on spending. That means inflation still remained high, and increased pressure was put on other groups. Under this pressure, many Americans haven’t had a positive view of the U.S. economy.
This week, the U.S. Bureau of Labor Statistics reported that inflation remained flat in May. One area where an increase was still observed? You guessed it… shelter.
Another Bankrate study released last summer found that the home ownership rate in the U.S. was 66% and that the increase in households increased slower from 2010 to 2020 than in any decades since 1950. Home ownership among young adults age 25 to 34 also decreased from 45% in 1990 to 41.6% in 2021.
“The number of first-time homebuyers declined to just 26% in 2022, which is the lowest level since the National Association of Realtors began tracking data,” said Bankrate. “That figure also represents a significant drop from 34% one year earlier.”
Things did get a bit brighter for potential home buyers this week. First, the Fed decided to keep interest rates flat. Second, Freddie Mac announced that the 30-year fixed-rate mortgage (FRM) averaged 6.95%, down from 6.99% the previous week.
“Mortgage rates continued to fall back this week as incoming data suggests the economy is cooling to a more sustainable level of growth,” said Sam Khater, Freddie Mac’s Chief Economist. “Top-line inflation numbers were flat but shelter inflation, which measures rent and homeownership costs, increased showing that housing affordability continues to be an ongoing impediment for buyers on the house hunt.”
Yahoo Finance’s Rebecca Chen said many consumers are still looking for a more substantial decline before they decided to plunge into home ownership. This is tied to what the Fed decides to do in the future.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated. In recent months, there has been modest further progress toward the Committee’s 2% inflation objective,” said the bank’s most recent Federal Open Market Committee statement.
As for renters – who included people living in 17.2 million millennial households last April, per RentCafe – NerdWallet said this week that rental costs increased last month. It said that rental price growth has seemed to slow from COVID-19 pandemic highs.