This Decade, the American Dream is FOR RENT
High-quality apartments with an array of resort-style amenities went mainstream over the last decade
Owning a home is considered a tool for wealth accumulation for Americans. The Meyers Edge recently noted, “While the longer-term benefits of homeownership are well-documented, those considering buying a home will often start with the basics: how much will I pay for my mortgage versus how much will I pay in rent each month?”
“While the Great Recession may have pushed people to rent out of necessity, the economic expansion which followed, coupled with changing attitudes toward family and homeownership, led to the rise of the renter by choice. The share of renters now makes up 34% of the general population and is the largest it’s been since 1960, when 36% of Americans were tenants. Rentership rates expanded across the board—from young families to seniors, from city cores to suburbs, many Americans have shifted away from homeownership,” says RENTCafé’s recap of its own end-of-decade study report. Developers responded to the demand with a construction boom unseen since the 80s, and apartment buildings themselves have become increasingly sophisticated, to accommodate quality-seeking lifestyle renters.
Here are highlights from the RENTCafé® report:
Housing Cost and College Tuition Saw Significant Rises. Over the last decade, the national average rent increased by $390 or 36%, propelled by increasingly valuable land, progressively sophisticated apartments, and a booming job market that pushed demand skywards. The median home price went up by 31% in the same timeframe, while the median household income grew by 27%. Private college tuition fees were also on the rise—the price of higher education increased more than housing costs, shooting up by 39% in the past decade.
The renter population grew twice as fast as the owner population. Since 2010, the number of renters increased two times faster than the number of homeowners, signaling a considerable shift in the American lifestyle. Texas had the most metros in the ranking of top 20 metros where the suburban renter population grew the fastest—Austin, Dallas-Fort Worth, San Antonio and Houston all made the list.
More high-earning Americans are making the choice to rent. Nationally, the number of households earning more than $150k per year who rent increased two times faster (+157%) than the number of high-earning homeowner households (+78%) since 2010.
The nation’s most expensive metros have lost residents in the past decade. California lost the most residents. Florida dominates the top 20 metros seeing population increase, with six metro area in the ranking, followed by Texas, with four.
Renting vs. Buying By The Numbers
The Meyer’s Edge concurs that in today’s affordability-constrained market, the rental market is for-sale housings’ direct substitute. Meyers Director of Economic Research, Ali Wolf notes, however, that in today’s low-rate economy, the monthly payment favors homebuying in certain instances.
With incomes rising, home price appreciation slowing, and mortgage rates sub-4.0% for the sixth consecutive month, Wolf wanted to see how housing payments stack up against the rental market. For this exercise, Meyers considered different down payments using a baseline of 4.0% for the mortgage rate.
The math consistently favors owning when the buyer is able to do a 20% down payment. For reference, the median down payment nationally is 12% for all buyers and 6% for first-time buyers.
The math can still favor owning with a 10% down payment. A down payment below 20% almost always comes with an extra cost in the form of private mortgage insurance. Even still, there are many metros where the estimated mortgage cost is below the median rent. The Los Angeles metro is a clear exception where the shift in down payment makes owning $530 more expensive than renting.
The monthly cost of owning is generally more expensive with a 3.5% down payment. Meyers’ simple calculation exemplifies what we already know: entry-level demand is financially challenged. In some cases, however, the spread between the two payments is equivalent to just one dinner out a month.
Wolf notes that payment is rarely the end-all. Shoppers will consider, among other things: market conditions, projected appreciation, the ability to use tax deductions, anticipated length of stay, cost and time associated with maintenance, and bang for the buck.
The Meyers advistory team urges builders to remain extremely focused on keeping their average selling price down by introducing smaller product at lower prices and, in some cases, be willing to help with closing costs. “In the meantime, let’s hope the bank of mom and dad opens their doors to help their down payment-constrained children,” Wolf says.
Highlights for the Dallas-Fort Worth-Arlington areas from RENTCafé’s end-of-decade study:
- DFW built more apartments in the past decade than any other US metro area. With its 149,000 new units built since 2010, DFW leaves the greater New York area in the dust. Almost half of these units, 73,300, were luxury, catering to the increasing demand of lifestyle renters.
- Renting over the age of 60 is another rising habit we saw in the past decade. Fort Worth is the 5th city by increase in the 60+ segment, as it saw 65% more renters in this age group move in. Dallas claims 12th spot with an increase of 55%, while Arlington ranks 15th, with 51% more 60+ renters choosing to move here.
- The number of renters with incomes over $150,000 has increased 6.5 times, between 2010 and 2018. With this kind of income, homeownership can be a safe choice, but it rose just 2.2 times.
- Suburban renting gained momentum in the past decade and the Metroplex makes no exception. Its suburbs added 28% more renters, while the urban area added 18% more. This places DFW on the 6th place based on its suburban renting increase.
- Lewisville and Denton make the list of Cities Where Renters Became the Majority this Decade, with Lewisville at 54.6% seeing an increase of 11.9%, Denton at 50.4% with an increase of 8.3% over the past 10 years.
- Arlington topped the list of Top 20 Cities by Increase in High-Earning Renters. There, high-earning renters multiplied more than six times.