Is Homeownership Becoming A Thing Of The Past? What The Changing Housing Market Could Mean For Investors

For decades, homeownership has been a quintessential part of the American dream. Owning a home can boost your net worth since homeowners have a net worth 40 times greater than non-homeowners, according to a 2020 Federal Reserve study.

But homeownership is a big responsibility and comes with hidden costs like property taxes, HOA fees, insurance and repairs. Additionally, it’s also becoming out of reach for many because of inflation, high demand and recent interest rate hikes.

Despite this, new opportunities have emerged in this changing market, including the rise of real estate crowdfunding platforms and higher returns for single family home investors.

Related: Fractional Investments In Rental Properties Now Available

A Changing Housing Landscape 

For past generations, it was relatively easy to buy a home. In 1960, an average home cost $11,900 while the median household income was $5,600. In 2022, the average home price is $384,000 with the median household income fluctuating around $74,000.

Home prices rose by 15.4% from January 2020 to 2021. One of the main reasons behind these rapidly appreciating prices was low interest rates. When mortgage rates are low, borrowers can be incentivized to buy pricier homes since the interest costs will be cheaper.

Currently, mortgage rates are increasing since the Federal Reserve raised the Federal Funds Rate by 0.25 percent. The Federal Reserve raised rates to combat record high inflation, which has been hovering around 7% to 8%.

High inflation and lower wages have made it extremely difficult, if not impossible, for younger generations to buy their first homes. Another important factor to consider is that many younger generations have student debt, with the average debt for a bachelor's degree holder being $37,172 in 2022.

To complicate matters, institutional investors, including funds like Blackrock, have been buying single family homes. These large investment funds have the resources to purchase homes in cash and can easily outbid private homebuyers. In turn, this has led to a 19.3 percent increase in rent from December 2020 to December 2021 nationwide.

Is Homeownership Still a Goal for Younger Generations?

Achieving homeownership is a lofty goal for those in the younger generations. However, this group of people can have a different outlook on life since they’re less likely to purchase larger items like cars or homes.

They marry later, if at all, as the average marriage ages for men and women are 35 and 33, respectively. By forgoing large purchases and marriage, younger generations have more freedom. For example, they’re more likely to travel, with millennials spending $200 billion on travel in 2018.

Additionally,  63% percent of millennials regret purchasing a home. Some reasons include overpaying, having high monthly housing expenses, being tied to one location, experiencing a bad neighborhood fit and decreasing values. Many millennials also underestimate hidden costs like surprise repairs, closing costs, property taxes and homeowner’s insurance.

Why Younger Generations Prefer Renting Instead of Owning

One of the main benefits of being a renter is that the landlord covers repair costs like leaky toilets or broken air conditioners and some utility expenses. Landlords also assume risks like depreciating prices.

Many millennials and Gen Z’ers frequently change jobs, with the average job tenure for this group ranging from 2 to 3 years. Job changing may also necessitate moving to different cities for the best job opportunities. Renting makes it easier to travel and move when needed compared to owning a home.

Younger generations also value amenities like swimming pools and gyms that make their lives more convenient and help them meet new, like-minded friends. 

Does This Trend Present New Opportunities for Retail Investors?

A silver lining to this situation means opportunity for investors, including the ability to invest in fractional real estate investments via crowdfunding.

Crowdfunding platforms like Arrived Homes let investors buy shares of rental properties. Instead of needing a large down payment, investors can get real estate exposure for as low as $100.

Current market conditions also make the single family rental market more appealing. Single family home renters are more likely to renew leases, and this sector tends to be more stable than other real estate sub niches.

For example, office space demand dropped during the COVID-19 pandemic, but single family homes will always be desired. These factors can lead to higher returns for single family home investors.

See also: Benzinga’s Favorite Real Estate Investment Offerings

Final Note

Homeownership is a worthy goal that comes with a lot of responsibility that includes keeping up with insurance, taxes, mortgage payments and repairs.

While homeownership can increase an investor’s net worth, it has become more out of reach for younger generations. High inflation, rate hikes and corporate investors are a few reasons that contribute to this unique situation, giving rise to new investment opportunities that include real estate crowdfunding and higher returns for the single family rental market.

Photo by todd kent on Unsplash