Homeownership hits 48-year low, rentals rising

A pillar of the American dream is cracking. While education, family and career remain high priorities in the national ethos of building success, homeownership is taking a hit.

According to the U.S. Department of Commerce, the seasonally adjusted homeownership rate declined to 63.5 percent in the second quarter, the country’s lowest rate since 1967.

“Generally, two-thirds, or about 66 percent, of the nation is a sustainable homeownership rate,” said Walt Nelson, an associate professor teaching real estate, finance and banking at Missouri State University. “There was an effort to boost that around the Bush into Clinton years and we hit about 70 percent. However, those policy changes, which only netted a 4 percent boost, contributed to a big financial crisis.”

A lot of people lost money and a lot are still upside down, Nelson said.

“Now, we have a millennial generation coming up who aren’t sure they want that burden,” he said.

On the flip side, the low homeownership rate means a positive trend in rental households. According to the Commerce Department, the number of owner households decreased by 400,000, while the number of renter households increased by 2 million in the second quarter.

“Rental homes are in high demand,” said Trent Jackson, broker/owner of management company At Home Real Estate Services of Southwest Missouri LLC. “Many houses we have on the website right now won’t be there in two weeks.”

Anchors away
Fielding 156 applicants in the last 30 days, Jackson said he’s noticed a distinct shift in the rental inventory available. As single-family households are downsizing, their large homes aren’t selling quickly and homeowners are turning to renting to recoup losses.

“It’s created a synergistic situation between homeowners and millennials. Millennials want a nice large home,” he said, noting they’ve always had a large inventory of apartments to choose from. Upward mobility in their careers means they can afford it, but it also means they don’t want to be tied down to a mortgage.”

Nelson said homeownership doesn’t make sense for portable, career-minded millennials.

“Buying a home is like buying an anchor,” he said. “When they rent space, they aren’t just buying that space for the month, they are purchasing the option not to buy.”

Nelson believes the homeownership rate will continue to fall in coming years as millennials – generally defined as those born in the early 1980s to 2000s – come of age.

“These kids have been through the emotional shock of the recession and are ultra cautious,” he said. “They also are dealing with tax increases and things such as the (Affordable Care Act).”

Nelson echoed the recent public comments of entrepreneur Tony Robbins, who said America is in a funk.

“All people are doing right now is trying to pay the bills, and you can’t run a country like that,” Nelson said. “Beggars can’t be choosers, but at some point, people get tired of being a beggar.

“Millennials are looking for the new frontier, the new moon landing so to speak. They don’t want to be tied down when that moment comes.”

Local impact
Nationwide, homeownership might be down, but in the Show-Me State, the 6,752 homes sold in August is up 3.6 percent compared to the same time last year, according to the Missouri Realtors Association.

Angela Mullings, a broker/owner with Century 21 Integrity Group, said southwest Missouri doesn’t have an ownership problem, it has an inventory problem.

“The perception is the market is not strong, whether that be in general or because of the season, so people aren’t putting their houses out there,” she said. “October has historically been one of (Century 21’s) best months.”

Mullings said Century 21’s local sales volume is up 57 percent over last year.

MAR reports homes sat on the market an average of 111 days in August, an improvement of 6.7 percent from a year ago and 8.3 percent compared to 2013.

As home appreciation begins to rise – with the statewide average selling price up 2.8 percent to $180,030 in August – Mullings believes the inventory problem will correct itself. The millennial issue might take a bit longer, she said.

“Every professional conference I attend lately has a class on millennials and how to handle them,” she said. “Millennials are waiting longer to purchase, but it’s not as drastic as we first thought.

“They want to be mobile on the younger end, but those reaching 30 and above are having families and settling down.”

The struggle will be reconciling the current home market with millennial expectations.

“They watch HGTV and are used to someone else taking care of maintenance, so they want something turnkey,” she said. “They want modern, the latest amenities, and the homes on the market are from aging baby boomers who weren’t concerned with upgrades.

“As real estate agents, we have to solve this disconnect.”

For the foreseeable future, Nelson said millennials always will opt for convenience.

“Time is the new money,” he said.