A Nation of Renters?
Is The United States changing from a nation with strong homeownership to a nation of renters?
Real Estate values and Rental Costs have increased dramatically since the Pandemic. Even though we see some softening in the market, prices remain high in most areas of the Country. We still see low inventory and demand remains strong. One of the reasons is that new construction has not met the demand for housing due to population growth, new family formation and immigration. The economic policies kept interest rates at an old times low in the last three years up to recent months when the Federal Reserve, with fear of inflationary forces, started a policy of increasing interest rats and stopped the quantitative easing. Therefore, during the last two years, despite of higher real estate prices, many citizens opted to buy given the very low long term interest rates which in many cases were below 3% fixed on a 30 year mortgage loan. Only those that were not able to afford purchasing a home or those whose their personal planning calls for renting as a better option, did not acquire a property since 2020. We can add to this the need of a larger home with a suitable space to cope with the increasing trend of working from home, initiated in 2020. Tenants, by choice or by necessity, saw drastic increases in rents, creating an affordability problem. On the other hand, Institutional and Private Real Estate investors flooded the market with funds to buy homes that were turned into rental properties, fueling the affordability problem. Also many homeowners refinanced their mortgages to take advantage of the very low long term rates never seen before.
A large percentage of the available inventory of houses nationwide comes from homeowners placing their properties for sale because of reasons such as relocating, moving up to larger home or downsizing. New home construction alone is not enough to cope with housing demand. The situation we face now is that the inventory of houses remains very low and unless the Country's Fiscal and Monetary policy, among other factors, make other investments more attractive, it is unlikely that Real Estate Investors are going to leave the market and dump properties nationwide ( we may see some particular circumstances but not a trend).
On the other hand, homeowners that purchased a new property or refinanced an existing mortgage at those very low rates are unlikely to sell their homes because the cost of financing (interest rate) for the replacement property is going to be at least twice of what they have now. Selling and then renting does not make any sense these days because of the pricey rental market compared to those low interest mortgages. On top of that the national trend to work from home or remotely allows many people to change jobs and remain status quo.
Hence, we see the inventory of available homes for purchase to increase basically by the new construction and minimally by current homeowners in the long term. This will place additional pressure on the rental market making more people tenants by necessity. Even worse in the short term with high interest rates, allowing less buyers to qualify for mortgages and afford them and forcing these families to rent.
So the question is, are we becoming a Nation of renters? We have to see but for now we can predict high demand in the rental market and rents to remain strong for years to come (we can see some softening since the high levels of 2021 and 2022 but nothing major)
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