Hague: Will home ownership in the United States be reserved for the privileged?
By Greg Hague, CEO, 72SOLD.com
“I will never sell another piece of real estate again,” said my son, Corey. “I regret selling my condo before buying my current home,” he added.
My nephew, Jason, echoed the same sentiment, lamenting the sale of his condo before buying the house he now lives in. He wishes he had rented this condo.
Same for my eldest son, Brian. He just bought a house in Fountain Hills and told me that when he was ready to move, he would rent out his current house.
It’s the same story with my youngest son, Casey. He has just closed his first house. His plans for the future? Buy it, live in it, then rent it. Never sell.
Coincidentally, Teresa and I decided last year that if we ever wanted to move, we wouldn’t sell our current PV home, but rent it out instead (long-term, not Airbnb).
A change of mentality
This new “never sell” mentality could be a harbinger, the beginning of a metamorphic shift in the way Americans approach homeownership. I see a growing trend of homeowners renting out their current home when deciding to purchase a new one.
Why switch from sale to rental?
Interest rates are low, rents are high and homes are appreciating rapidly.
This means you can rent for more than your mortgage payments and make a monthly profit while your home appreciates.
Many investors already view homes as a better investment than stocks, with rent payments exceeding dividends and home appreciation better than stock price increases.
Why will homes continue to rise in value?
We have growing demand from “normal” buyers and now investment buyers.
We had a housing shortage, now further exacerbated by Covid-induced supply and labor shortages.
This housing shortage will get worse when landlords (like my sons and nephew) decide never to sell.
It will get worse as more and more homes are bought by investors for long-term rental.
Ultimately, growing buyer demand will continue to drive the dwindling supply of homes, which will keep home prices rising.
Housing estates for rent
Six months ago I published an article called Rental Nation. I pointed out that one of four homes in America is currently being bought by an investor to rent out. That’s almost one in three in Phoenix.
But investors aren’t just buying homes, they’re buying brand new developments. For example, Fundrise purchased DR Horton’s 124-home subdivision in Conroe, Texas, all for long-term rental.
The Wall Street Journal ran an article with the headline Blackstone bets $6 billion on buying and renting homes.
The article read: “Many analysts say that with home price gains showing little sign of abating, rents may continue to rise as potential buyers are shut out of the sales market and are forced to continue renting. . The business is attractive to investors because growth can come from both rising house prices and rising rents.
Normal buyers find it hard to compete
It’s becoming increasingly difficult (and sometimes impossible) for “normal” homebuyers to compete with companies that make non-contingent cash offers at full market value, waive the assessment, and then let sellers rent for that they find their next home.
I deal with it every day in my office. We sell 25 to 30 homes a day here in Arizona, and month after month it seems like a higher percentage of those homes are selling for the best price to investors who plan to rent them for years.
The End of an American Dream
We live in a country that has long encouraged home ownership.
The VA program was created in 1944 to help veterans buy a home after World War II without a down payment (even with low credit scores).
Long-standing tax law made interest on home loans deductible while rent payments were not, which is illogical given that rent payments and home loan repayments are personal expenses (not professionals).
The VA loan program, tax-deductible home loan payments, first-time homebuyer credits, and a variety of other incentives have been designed to encourage homeownership.
Are we on the verge of becoming a nation of investors and tenants? Are we living the end of an American dream?
Are we going to become a home ownership nation for the privileged?