I am a member of a Facebook group of real estate agents. We talk about all sorts of stuff, and lately, there has been lots of talk about how most Millenials are renters rather than buyers. There are many reasons for this, but a big one is that they grew up during the housing crash and watched their parents and their friend’s parents lose their homes, and have their credit destroyed.
To really understand what happened, and what it is all about, we need to go back pretty far, to when the government got involved in home loans. There is a pretty decent history of it here, and it is telling. The government, as one of the New Deal policies, created agencies to guarantee home loans, and to reduce the large down payment that was required to buy a home. They introduced the 30 year fixed loan, and they had good reasons for doing this.
When a family buys a house with a substantial down payment, they have skin in the game. They will take better care of the home, they will be much more apt to make the payments, but more than that, they have real pride of ownership and have provided a stable living environment for their family. Family stability, having a home base, pride of ownership… these things are important. My parents owned their first home for only a few years, then moved to another where they lived for the next 40+ years. The first home I bought, I stayed in for more than 20 years.
In that time, the loan is paid off or paid way down; some states have laws that prevent any re-financing or have related restrictions (interesting that these states suffered the least from the housing crash…) So what does a family situation look like, 25-30 years after purchase?
– The home is almost paid off, or totally paid off.
– There is LOTS of equity in the home.
– There is no house payment after it is paid off.
– When the wage earner passes away, or retires, there is no house payment.
– When both parents pass, there is a substantial legacy for any offspring, due to saving money for 30 years in the home, plus the increase in home value from market pressures.
To make decisions like this requires a long term outlook. Someone who is renting, other than for just a short time, generally will have a much shorter timeframe outlook than someone who wants to buy a home. The housing crash caused by government interference in the markets, followed by further interference to cure the wrong problem, resulting in much tighter loan standards, has led to a situation not dissimilar from before government interference started: Fewer families own homes, the 1% own homes and rent them out to everyone else. We see this in Phoenix with one of the largest homeowners begin Blackstone, renting the homes out to families who can no longer qualify for a loan.
Buying is one of the best things a family can do. Sure, there are issues, especially in a highly mobile society where a job change might require a move across the country – and when that happens, someone with a longer term outlook might rent out their home (for more than the loan payments!) and rent in the new city for a little while to save up for a new down payment, and to get to know the area well so that a good decision can be made for where to buy the next home.
There are other options, and other problems as well. We’ll discuss that in an upcoming blog post.