The New American Dream: Renting?
The idea of owning a home has long been touted as the “American Dream”. In fact, it was this concept that led many Americans down the dangerous path of buying homes at unsustainable values while utilizing mortgage loan products that were later considered “toxic”. Public and private enterprises are equally responsible for encouraging homeownership as a “right” for all Americans. The burst in the housing bubble, a collapse in home values, and a tightening in consumer credit are combining to promote “The New American Dream” … renting.
The average gap between owing a home and renting was historically $376, which means that it would have cost $376 more to own a home instead of renting. The flood of vacant homes and condos on the market has closed this gap to $70 in the current cycle. Many consumers are electing to become renters instead of owners. Of course, the large number of “shadow” rentals on the market is causing downward pressure on investment properties and bringing average rents down further. For example, less than a year ago, the average apartment vacancy in Greensboro was less than 10%, but today the vacancy is closer to 15%.
The recent boom in housing caused renting to fall out of favor with most consumers, but the continuing rise in unemployment creates uncertainty and that is not good for would be homeowners. Renting provides flexibility, so that if you need to move quickly, then you are not left with trying to liquidate your home. Specifically, the option to rent is a good utility for young consumers that are fresh out of college or still new to their careers.
In the past, consumers preferred the idea of owning over renting because of the common myth that homeownership is the same as investing. Misinformation about homeownership left many consumers feeling the value of their homes could never fall. These myths and many more are now becoming more evident as consumers recognize that home values do fall and owning a home should not be treated as a short-term investment or a piggybank that can be cracked open anytime. Despite the late-night infomercials, owning a home is not a required step to achieve financial independence.
The burst in the housing bubble ravaged families and businesses across our country. Undoubtedly, consumers are becoming wiser when they shop for a home by paying attention to market values, cost of credit, and job security. People are returning to the age-old axiom of “living within your means”. Whether you choose to own or rent a home … depends on your “means”. Learning how to make good choices that are based on your individual situation is the key to mastering your money and creating long-term wealth, which is “The Real American Dream”.