The first thing many young 20-something’s want to do is buy a home and get a mortgage.
But times have changed. More people around the country are signing rental leases, even as lenders also report an uptick in home mortgage activity.
The drive toward renting isn't just about funds — it's also part of a generational shift as younger people choose to rent as a lifestyle choice and a wide variety of other reasons.
The reasons vary, from whether it's a desire for flexibility, an aversion to big-ticket repair costs or fears left from owning an unsalable home during the housing crisis.
Residential rental vacancies are at their lowest since 1985, and apartment managers are hard-pressed to deal with demand even as rents continue to rise.
The home-ownership rate for those under age 35 is slightly more than half the national average and trending downward about 1 percentage point per year.
At the same time, apartments have steadily grown larger, and they only stay vacant at most just a few weeks or months before being snapped up. Apartment occupancy rates are higher than average, and have risen in the past year, which is a significant shift in the industry. It will be "several years" before there are concerns about oversupply.
Rents have risen here between 3.5 percent and 4 percent in the past year, which looks good compared with double digit increases of the past.
The good news is that job growth is the top factor that drives occupancy and rents. An improving job market should eventually raise wages.
Renters as a percentage of household units are growing, as is their cost burden, and home ownership may be at a 20-year low.
You can buy a house cheaper than you can rent one in some states. But a financial toll is still evident, as most of those who do buy rely on the federal government to back their mortgages. Before the mortgage crisis, more than 80 percent of home-purchase mortgages were conventional — those not backed by the government. That number was halved during the recession, and although conventional mortgages have rebounded to about 55 percent of market share, the FHA loans account for nearly a quarter of mortgages (up from about 10 percent), and loans backed by the Department of Veterans Affairs and the U.S. Department of Agriculture remain near all-time highs of 12 percent and 9 percent, respectively.
As the economy improves and interest rates rise, mortgages will become less attractive, meaning that financial strain of buying is likely to remain for renters.
Knoxville News Sentinel