To rent or not to rent, that is the question on millennials' minds as they look for places to live. But is renting better than buying? Read on to see!
The Millennials just can’t catch a break. While that big generation born between 1980 and 1996 might be bending the American culture to its will, those tens of millions of young adults can’t escape the economic forces that keep knocking them back. First, many of them graduated high school and college just before or shortly after the Great Financial Crisis, which limited their career opportunities and held down their wages, and then they had to deal with skyrocketing childcare and healthcare costs. Now comes the latest money hassle: soaring home costs coupled with rising mortgage rates. Adding insult to injury, rents are on the rise, which will make the decision of whether to rent or buy that much harder.
Apartmentlist.com reported that rents rose across the nation by 1.3% during June and are up 5.4% for the first half of the year. That’s slower than the 8.8% rate of increase during the first half of 2021, a year during which rents rose 17.5%. Typically, rents lose a little ground from September through December, but they dipped only in December last year, as landlords made up the ground they lost during 2020. Rents rose in 97 of the 100 largest cities over the past year, with Miami (up 25%) and Orlando (up 24%) leading the way. Rents are lower today than before the pandemic in just one major city, San Francisco, and that’s by a mere 1%. Things could be about to get worse.
Home sales prices are still posting records, even though mortgage rates are up by almost 2% this year. This sounds like one of those situations described by the late economist Herbert Stein, who said, “If something cannot go on forever, it will stop.” Potential first-time home buyers, many of whom are Millennials, are shying away from buying a home today, because they’re worried about buying at the top. That sounds logical, but it leaves them paying higher rates in the red-hot rental market. If rising numbers of Millennials choose to put off buying a house for a year or so, they might not get their desired outcome; the demand for rentals will increase over time, as more of Generation Z joins their ranks.
Home builders have many units under construction, but they also have a backlog of orders. The latest housing starts report shows that new construction fell 11.9% in May and 2% in June, and it is down 6.3% from this time last year. Builders don’t want to get stuck with unsold inventory, so they are reducing their activity as the economy barrels toward a recession. This makes sense, but with a housing shortage of between three million and five million units, falling construction will just make it worse.
All of this leaves Millennials in the tough position of deciding whether to pay up for a home at today’s astronomical prices or to pay exorbitant rent, as they hope for a pullback in real estate. Unfortunately for them, there’s no right answer.
For more information on housing and the effect it's having on the economy, watch this video by Rodney Johnson
Written by Rodney Johnson The Rodney Johnson Report
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