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A New Day in the Way America Looks at Housing

As published in the National Real Estate Investor(NREI Online)by Joseph Greenblatt
July 18, 2014

For years, it seems, we’ve heard about the rent-vs-own debate—a question that often influences whether the homeownership rate is rising or falling.

In reality, there is no debate. Rather, what we are witnessing, I believe, is no less than a tectonic shift in the way Americans view the concept of dwelling, a direct result of the rise of the millennial generation and a redefinition of what retirement means on the part of the baby boomers.

Traditionally, the homeownership rate in this country has risen in direct proportion to the growth of the economy, sometimes unreasonably so. We all witnessed the dramatic reaction to the irrational exuberance and over-extension of credit that precipitated our recent recession. People were allowed to buy homes in a federally-mandated system that encouraged them to achieve the “American Dream of Homeownership,” even if it wasn’t a truly viable option for them. For those who ended up in foreclosure, who briefly tasted a higher level of homeownership than they could afford, it was frankly ugly, and I believe it resulted in a rejection of homeownership as an option for many people.

In a recent New York Times article, entitled “Rent or Buy, the Math Is Changing,” writer Neil Irwin, citing an analysis performed by the paper, noted that, “In the country’s most expensive places, including New York, the San Francisco Bay Area and Los Angeles, buying a home again looks like a perilous investment, based on the relationship between their prices and rents or incomes.”

In her blog, Kelly Phillips Erb lists “11 Reasons Why I Never Want to Own a House Again.” And reason #1, it should be noted, is: “As investments go, it’s not always a great deal.”

Naturally, if you Googled “rent vs. buy,” you could produce a growing number of pro-ownership articles as well. Today, with credit becoming more available with the improving economy, we are seeing interest in homeownership returning. Neither interest rates nor home prices are rising exponentially, and more people are once again opting to buy a home. As long as we don’t repeat the stupidity we demonstrated in 2006 and 2007, this is a good thing.

And here is where that tectonic shift is taking place. I see two cohorts of renters. First is the group who are renters not by choice but by circumstance, those who don’t have the wherewithal to buy a home. They struggle in today’s culture of widely available consumer credit that renders it difficult to save money for a down payment on a home.

The other group is made up of renters by choice, and it is interesting to note that this group pulls most of its members from both ends of the generational spectrum. At one end we see seniors who have sold their homes, unlocked that equity and are now renting as a lifestyle choice, free from the cost and obligations of maintaining a home.

At the other end is the so-called millennial generation, quickly becoming our most significant rental market and changing the face of what people want in rental homes. These are the people who witnessed their parents’ foreclosures and so are leery about homeownership. They tend to define traditional homeownership as occurring in suburbia, and when it’s time to raise a family they will gravitate there. In the meantime, renting is a viable option. There is no compulsion yet to buy.

In the face of this massive shift in how we as a society look at the rent-vs-buy decision, single-family home rentals have become a growing trend and a sort of compromise for all of the above groups. It has blossomed into such a big market, in fact, that not only private owners are taking part, but so are major institutional players such as Blackstone, which alone has bought thousands of homes that are rentals today. I believe eventually this shadow inventory of rental homes will return to the for-sale market. In the meantime, it is a product type answering a new need.

It’s critical in the face of such change for industry associations to keep their membership informed. Although IREM is known for its educational programs that lead to certification, in the name of serving the industry and keeping our constituents up to speed on such trends, we have in recent months launched a non-credentialed course on home-rental management, offered at the chapter level, often in partnership with the local boards of realtors. This is one of the clearest initiatives we have taken in response to this major market shift. It is also, I believe, a prime example of an association remaining topically relevant to its constituents. The real estate market is reflective of the needs of the user base. In the home vs. rent discussion, there are clearly watershed changes afoot. With this change comes unprecedented opportunity for those practitioners who are aware of what is happening around us.

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