Hello LOs!
A recent story on build-to-rent suburbs has me wondering if the trend is here to stay.
Let's take a closer look.
Investors such as banks and private equity firms are already betting billions that it is. Hunter Housing Economics, a real estate consulting firm, estimates that investors will throw another $40 billion toward the sector in the next 18 months.
Build-to-rent communities which, as the name implies, are houses built and managed like apartments, are cropping up everywhere. They're already 6% of all homes built in the U.S. each year. Hunter Housing Economics projects that share will double each year until 2024.
The homeownership rate has declined with each generation since the Baby Boomers. That trend is expected to continue through 2040, according to the Urban Institute.
Prices are high, which makes it harder to get a starter home.
Also, it turns out that younger generations are apparently not as excited to get a 30-year mortgage as previous generations were. That could have something to do with seeing, firsthand, billions in housing equity wiped out during the great recession.
But it could also reflect changing preferences.
A survey conducted by Bankrate in May found that more than two-thirds of millennial homeowners said they have big regrets about their purchase. The biggest complaint, by far, was that maintenance costs were unexpectedly high.
The next two biggest complaints were the amount of the mortgage payment, and unhappiness with the rate. Millennials were, by far, the most complain-y of the age groups the survey studied. (Maybe they don't know the average mortgage rate used to be in the double digits?)
Of course, all of those issues — from navigating the mortgage process to mowing the lawn — would be taken care of in a build-to-rent community.
Other typical perks of traditional home ownership, like more say in local governance and the ability to build generational wealth, could also face changes if the trend were to gain long-term traction.
Instead of building equity in a home, people could own stock in companies that own properties in their area, a housing expert told the Wall Street Journal.
At least one LO came to the defense of homeownership.
"Most people would rather own a home as opposed to renting," the LO told HousingWire. The biggest challenge is still getting the money for the down payment, but the perks of homeownership can't be replaced by renting, he said.
"The reason why they would want to buy a home is simple: historically there is an appreciation of value over the course of time, plus building equity based on mortgage payments gives a nest egg for future retirement and homeownership."
Another LO warned that the build-to-rent trend could mean more of the housing stock would be owned by private equity and big banks.
"This could drive home prices higher due to the additional scarcity it creates," he said. "We're already seeing this in many markets around the country, where private equity firms are buying up as many homes as they can with cash."
LOs – what do you think? Could homeownership be on the way out, especially if build-to-rent communities gain traction? Send a note, with the subject line "American dream," to gkromrei@housingwire.com.
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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