The Young and the Renting

A recent Pew research report showed that 39% of young adults ages 18-34 have returned home to live with their parents, after struggling to support themselves on their own. Going by age groups, 53% ages 18-24, 41% ages 24-29, & 17%, ages 30-34.These results are not surprising considering the unemployment rate, which is particularly high among young people. In addition, some are straddled with student loan debt which is at an average at a all time high at $26,300.

But, nevertheless, there are still many younger people who are employed, on their own and renting. Rent rates have been rising, while home affordability we are told is at a greatly improved level. So, why not buy?

The answer is that there are reasons to continue renting, rather than owning, ones home. Even those with an income and no debt, and enough cash for a low down payment, are beginning to doubt the wisdom of jumping into home ownership. In spite of almost record low 30 year fix rates renting is an attractive option for many in that 18-34 age bracket.

Question is when will this change?

The obvious answer is that these things will need to happen before younger renters become buyers en masse; 1. the economy gains traction and job numbers really start to pick up, 2. incomes look like they are growing and 3. home prices are rising once again and not with the current accompanying inventory drop.

But, what if even when the above happen, we still don't see a return of renters to the buyer column?

What if we lost a generation of home buyers? Many people talk about how the stock market may have lost a generation of investors. Over the last 12 years we have witnessed two stock market crashes, a flash crash, fat fingers, and general frothy turmoil which seeds fear of participation in some potential investors.

So, will this last housing bust leave doubt and distaste in its wake? Have those who may qualify down the road lost that loving feeling? Is it gone, gone, gone?

My first answer is yes but with a caveat.

True, I have seen for myself a lack of enthusiasm for home buying in this market among the 18-34 crowd. Saving for a down payment is always the first issue. Not only is it difficult to amass the traditional 20% down payment, for many just a 3.5% down payment seems daunting. The drop in home prices makes homes more affordable than they were for first time home buyers, but the goal remains elusive for a good chunk of them to qualify for a mortgage.

But there are those who can afford to become homeowners. What of those? Even they are not convinced its right for them. I often hear those in this age group say, “Why should I buy a home when I know I am going to move? Maybe if I knew I was going to stay in one place and have settle down I'd feel differently.” That is a reasonable, if not outright accurate, reason not to buy. Being nimble, without ties, in this new world economy can give you an edge.

Also, this generation is settling down and forming families later that the previous generation. Getting married and having kids isn't something that needs to be done in your 20's any longer. First marriages and children often are delayed now until one's 30's.

A very few have expressed that not dealing with taxes, HOA fees and not being obligated to fix up the home is a plus.

So, besides the fact that Americans can't qualify for loans, maybe some that can would rather rent until they are more settled in their life style

A lot of things have changed in America because of our debt blow up, our current debt situation and the future debt problems we will have if we don't get some order from chaotic spending. And, so, along with and in reaction to all that financial drama, maybe a generation will wait just a bit longer to buy a home.

Logan Mohtashami is a senior loan officer at his family owned mortgage company AMC Lending Group, which has been providing mortgage services for California residents since 1988.