Rent or Buy
One Size Does Not Fit All
Owning a home has been a door to the American Dream for decades, but that may be changing.
Almost 70 percent of U.S. residents were homeowners in 2004. Most were Baby Boomers who graduated, got jobs and worked to save to buy their first property. When kids came along, they purchased a larger place with a yard and amenities. Blessed by the U.S. tax code, home appreciation, a paid-down mortgage, many eventually used home equity to finance a comfortable retirement.
Today only about 63 percent of us own a home. The Census Bureau predicts that rate will drop as more people rent rather than buy in the future.
Key demographics driving that trend are Millennials (born between 1982 -2004) and downsizing or “right sizing” older adults. Patterson Group broker Kevin Patterson sees both in the Pikes Peak region.
“The 60+ buyer is weighing whether to move into a patio home or townhome that offers maintenance or landscaping assistance,” he says, adding they also look for security, gated access, golf course or other amenities.
But he has also seen younger prospects intimidated by a home’s cost, upkeep and the commitment of a mortgage. Some worry about “pop-up” expenses they may not have reserves for – or how difficult it will be to resell their home.
“When I bought my first place years ago – a $37,000 townhome – I thought I had arrived. But sitting at the closing, I was scared to death about the commitment and risks,” Patterson says in retrospect.
With Pikes Peak region rents up 17 percent since 2004 – projected to rise another 5 percent this year – some young buyers have committed. The Pikes Peak Association of Realtors reports more than 13,700 homes sold in 2015 – the largest volume recorded since 2005. Thirty-six percent sold for $200,000 or less.
One example is Systems Analyst Matthew Minneman. He assessed the risks and benefits before buying a foreclosure property a few years ago from Ent.
“I got it for $35,000 under market. Buying allowed me to go from living in an 800-square-foot apartment for $550 a month rent plus $250/mo. for storage to paying under $900 per month for 2,300 square feet with a garage and on-site storage building,” he says, smiling. So far his bet is paying off. Today the property’s estimated value is $70,000 more than he paid for it.
He says his friend still pays $2,100 a month rent for 1200 square feet with no tax benefits but he doesn’t want to take a risk, Minneman says. “A lot of Millennials want to stay flexible about where they work and live. Others think they can’t afford it, but mostly they just don’t understand the process.”
Patterson believes a real estate professional can educate young buyers on the risks and rewards of home ownership and help them build wealth.
“Renting looks easier, but in the long run they will do much better with owning,” he says. “Why not enjoy the tax benefits, potential [value] appreciation, increased size and amenities – as well as the credit boost a home can offer?”