Rise of the Rentals

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 17 of 67

16 | Th e M Rep o RT cover story yesteryear, it was important to own your own home, no matter how small it might have been. Living in a rental was not very acceptable and seemed to attract a certain degree of disdain. Nowadays, renting is more acceptable as the stigma attached to it dissipates. Attitudes about renting have changed, just as the fiber of people's lives has changed. A survey conducted by Hart Research Associates for the MacArthur Foundation found that 57 percent of adults believe that buying has become less appealing. In addition, 54 percent believe that renting has become more appealing than it was in previous years before the housing crash in 2007. Peter D. Hart, chairman emeritus of Hart Research Associates, says this survey demonstrates that although the American public's desire to own a home remains a bedrock principle, the unconven- tional is becoming more accept- able because of lifestyle changes. As the economy continues to stabilize, some wonder if own- ing a home is a good invest- ment. Statistics show there is no longer a chance of building equity quickly or selling at a profit in a short period of time. In past years, depending on the area, there could be a rapid appreciation in the value of a home. For example, one couple purchased a home in McLean, Virginia, when the husband found a job in Washington, D.C. They purchased the home in 1984 for $235,000 and sold it for $490,000 in 1989, only five years later when they moved to another state. Those conditions no longer exist in today's marketplace. In addition, most home loans usually don't accrue a lot of equity in a short period of time. The National Association of Realtors (NAR) estimates that the average length of time someone stays in a home is about nine years. That means on a 30-year mortgage, very little of the payments are credited to the principal of the loan in that nine-year period. Most of it goes to interest, which means that there won't be much equity available upon sale of the home until some- where around the 21st year, when half of the principal will be paid. So, unless someone is confident about living in a home for a long period of time, there will not be a significant amount of equity available until the latter years of the loan, assuming that inflation of housing prices does not occur. And that's for ideal situations. Many potential homeowners, especially the echo boomers, are priced out of the market. Either they cannot qualify under the new debt-to-income ratio, they may not have a large enough down payment, or they may not have a credit score high enough to qualify for an affordable inter- est rate. All of these requirements, in addition to other consider- ations, are limiting the number of people who might become homeowners in the near future. So, where will these people live? They will rent an apartment, condo, or single-family home. But, even for those with the means to purchase a home, rent- ing seems to be a more attractive option. In 2007, when Dr. Dale Edmonds and his wife, Margaret, both educators, moved from New Orleans to Ocean Springs, Mississippi, after his retire- ment as an English professor at Tulane University, they looked at houses but found that most were overpriced. "We discovered that prices were still inflated due to an ongoing housing shortage that began with Hurricane Katrina in 2005," he explained. "Renting an apartment seemed to be the logi- cal thing to do." Fortunately, the couple found a spacious three-bedroom apart- ment and decided to stay for a while to look after Margaret's mother, who also lives in the area. "Almost five years later, we're still here," Edmonds explained. "While I don't foresee our buying another house anytime soon," he added, "we're keeping our options open." He feels that at the present time, renting, rather than buying, is better for the couple in several ways, and not just financially. Viewpoint of a Real Estate Professional E ven some real estate profes- sionals confess that renting may not be such a bad idea. Mark Shandrow, an REO Realtor in Long Beach, California, is one of those people. "Real estate is a great investment, but I think there is a lot of misunderstand- ing regarding the real benefits of homeownership," he said. "It's great to own a home, but do you want to sacrifice your lifestyle to do so?" he asked. "People need to realize that homeownership has a lot of unforeseen costs." Shandrow is owner of Shandrow Group Realtors and is also a member of U.S. REO Partners, a membership-based organization formed in 2010 by industry experts who have expe- rienced several servicing default cycles. He sells both residential and commercial properties. Although he owns some office buildings and apartments, he and his family live in a home they are renting because he feels that renting is much more economical than paying on a mortgage. "We're renting a house, easily worth $1 million, for $3,000 per month," he said. "If we owned this house, our payments would probably be $5,000 per month, and we would have had to pay approximately $200,000 down to own it. If you divide that amount by $3,000, we can live in this house for five-and-a-half years for that same amount." Shandrow says that another advantage of renting is that he no longer has to visit home improvement centers every weekend. "I can't tell you how many weekends I've spent doing that," he said, adding that he and his wife remodeled a kitchen in a home they owned to the tune of $80,000. "By not spending money on home improvements, that's money in my pocket I can save to pay for my kids' education." • Proven systems, supported by experienced MI professionals • Solid nancial resources, united to prudent evaluation of credit risk • Mortgage insurance solutions to support diverse mortgage lending needs • Exceptional customer focus and personalized service Visit for more information. Arch Mortgage Insurance Company (Arch MI)* actively supports your lending goals. With a parent recognized worldwide for its successful track record in insurance, reinsurance and risk management, Arch MI is the new, reliable counterparty built on the strongest of foundations: *CMG Mortgage Insurance Company has changed its name to Arch Mortgage Insurance Company in Wisconsin, its state of domicile. Filings are underway in all other jurisdictions where required. Arch MI Your Home for Private Mortgage Insurance Attitudes about renting have changed, just as the fiber of people's lives has changed.

Articles in this issue

Links on this page

Archives of this issue

view archives of TheMReport - Rise of the Rentals