Renting is the new black
We’ve reported for some time that the stigma around renting has faded and that leasing will be an emerging sector any minute now.
Pacific Investment Management Company, LLC (PIMCO) has released a report entitled “Are There Any Rungs Left on the Housing Ladder?” that alludes to the idea that homeownership is not an important goal for college graduates, given that they leave school with so much student loan debt.
The oldest and youngest may not be buying soon
Older Americans are focused on retirement and less on homeownership as leaving an inheritance is less and less a goal of retirees as they simply seek to maintain some form of housing into their elderly years.
PIMCO reports that the overall question that looms over the mortgage industry is: Who is going to buy housing in the next 10 years? The likelihood has decreased that it’s a retiree or college grad, leaving a smaller pool.
The company said that in suffering economies, first-time home buyers are typically looked upon to drive demand but that this time around, as perception has changed, the industry should certainly not be overconfident about this formerly secure concept.
What has changed?
The report notes that this demographic is financially unstable which leaves them in a “lower rung” on the housing ladder and that younger buyers are becoming long-term renters in increasing numbers.
With politicians fighting to require 20% down on all home loans, this young segment of the market (who was already being pushed into renting due to an inability to save because of deep student debt) could become renters indefinitely as the goal is to simply stay afloat at all costs, not to own land at all costs.
“We believe that some amount of the reduction in graduate earnings power and rise in debt is a longer-term phenomenon that could serve to limit college graduate home purchasing power for the foreseeable future,” the report stated.
At the other end of the spectrum is older buyers who are required to contribute 10% more of their pay to their retirement savings and have less disposable income, limiting their ability or willingness to upgrade their home or buy second homes which has long been a tradition in this segment of America.
Permanently postponing homeownership
“This could be manifested in permanently postponed home purchases, reduced tendencies to upsize, lower likelihood of buying a retirement home, more affordable post-retirement rental choices,” PIMCO notes. “All of this suggests downsized housing choices — one home instead of two, rent rather than own, smaller place rather than large. These choices could serve to reduce the dollars committed to housing investment.”
