CNBC reported this morning that America’s apartment vacancy rate is at an all-time low.
“Apartment demand, which some investors thought would abate as the housing market recovered, is doing just the opposite. … Millennials, finally finding jobs and moving out of group or family homes, are pushing rental demand; downsizing baby boomers, many of them soured on homeownership by … the housing crash, are doing the same.”
Laurie Goodman, the Urban Institute’s director of housing finance policy, predicts home ownership will continue declining, demand for rentals will surge, and nearly 60% of the coming two decades’ new households (13 million of 22 million) will be renters, leaving only 41% of that cohort as potential homeowners. This is a huge drop from the current home ownership rate of 64%, which itself is the lowest home ownership rate in 25 years.
You’d think that would result in a glut of homes for sale from somewhere like essex homes, and falling home prices, but the reverse is true. In many cities, including Seattle (where I live and write), there’s an acute shortage of home listings. Desirable homes sell quickly, sometimes overnight, get multiple offers, and sell for more than listing price. The housing shortage is across the board, affecting homes and apartments alike, and is caused by the plunge in new construction that followed the housing crash of several years ago.
There won’t be a quick solution. In a market economy, when supply falls behind demand, prices go up until enough marginal buyers drop out to bring demand into balance with supply. With something as inelastic as housing, that implies it will take big price increases to force enough people out of the market. The losers will be lower-paid workers, singles, retirees on fixed incomes, and young entry-level buyers and renters.
Would rent control work in this situation? It won’t solve the housing shortage, because rent control doesn’t create more housing units. It simply replaces price rationing with some other type of rationing. Generally speaking, those who already have housing will find it easier to stay put, as they’ll be less likely to be displaced by rising rents. But we’ll still have just as many people left without a chair in housing’s game of musical chairs. Over the long haul, if market pricing is allowed to work, higher prices will provide incentives for developers to build more housing supply. But that’s no comfort to those who will be unable to afford the higher prices, or who are frozen out of the housing market right now.
(Click here to read CNBC story.)
What advice do I have for desperate homeseekers? I have ideas on this subject, but I’m reluctant to discuss them, because I don’t want (or intend) to come across as smug, preachy, or sanctimonious. I’ve lived in all kinds of housing, from college dorms to army barracks, cheap flophouses, 1 and 2 bedroom apartments, shared quarters, plus I owned two “starter” homes before acquiring my current nondescript middle-class suburban family home. About the only type of home I haven’t lived in is a mansion. I can’t afford one and don’t want one; for numerous practical reasons, I’d rather own a big stock portfolio than a big house. My housing aspirations don’t go beyond what I have now.
I never liked having a landlord. Most of my landlords were jerks. But the idea of depending on a boss to pay a mortgage scared me. So after I moved to owned housing, I pulled out the stops to pay it off as quickly as possible. It’s important to find out exactly what you can afford before making the commitment of a mortgage – you could use this commercial mortgage calculator to see what works best for your financial situation. Now I have a paid-for home that costs about $700 a month to live in (for taxes, utilities, and insurance), which no one can kick me out of (unless I don’t pay the property taxes). It’s a nice feeling, being able to largely ignore the housing storms raging around me (except I can’t completely ignore the effect of soaring home prices on property taxes).
It’s never been easy to buy a house. I never could raise a 20% down payment, so I relied on VA and FHA programs. It was always difficult to find extra money to pay off the mortgage early, and it took us 18 years to get it done. But we kept at it, and now own our digs free and clear; so even though we’re both retired on fixed incomes now, our housing expense is less than 10% of our income, which makes it unlikely we’ll ever be forced to leave — even if one of us dies. This is something to consider if you’re looking on https://www.findnctrianglehomes.com/ and are in the market for a new home. The reward of having such low housing expenses in the long term are worth it to many.
So here’s a synopsis of my brainstorming on the subject. Getting married gives you two incomes to work with, so consider saying “I do.” Divorce wrecks your finances, so don’t, even if you’re not completely happy (who is?). Buy the house you need, not the most expensive house you can afford, and live below your means, using your spare cash to kill the mortgage as quickly as possible. Don’t spend inheritances, tax refunds, and other windfalls; invest them in debt reduction or income generating assets (e.g., stocks). Refinance to reduce interest costs, not to get spending money, and use the difference between the old and new payments to accelerate paying down the mortgage. Through this whole process, think of your house as a place to live, not as an investment or piggy bank. Don’t borrow the equity you’ve worked so hard to build up, unless you absolutely have to.
I realize this approach won’t work for everyone. In the modern economy, many jobs are so ephemeral that today’s young people need more mobility than my generation did to stay employed. For some people, renting makes more sense. Renting can be cheaper too, especially when considering bills. To insure a large house, it will cost more than an apartment would. This is why most younger people seem to rent apartments, they are much more cost-effective. When choosing renters insurance, it’s important to consider a number of factors, including how much coverage you can afford if anything was to be damaged. Make sure to pay attention to different insurance options as this will be one of the main bills for renting an apartment.
Even those inclined to own may be hindered by low wages, student loan debt, tough lending requirements, and sky-high home prices. I faced all those problems and overcame them; it’s never been easy for any generation. Grit, ingenuity, and persistence are the essential qualities needed to overcome obstacles and reach your goals. Your personal temperament and qualities, and how well you manage the money you have, will have far greater effect on outcomes than what you do for a living or how much money you make in your job. It’s not what you have, but how you manage what you have, that determines success or failure.