As US Rents Increase, Why Aren’t More Renters Buying Homes?

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By Jacob Maslow

Smiling woman with keyThere is no mistake about it. Renting in the United States isn’t cheap. In the US, renters paid $441 billion in rent last year alone. Interestingly enough, this is the total figure for the top 25 metro areas in the United States. The overall figure is much larger.

This figure also reflects a 4.9% increase from the prior year. The reality is that rents are zooming up in the United States as the broader economy continues to strengthen. As more people have jobs, more people are moving out of their parents’ homes or leaving shared housing arrangements to strike out on their own. This has unleashed a large wave of demand in the rental market. And since supply isn’t going up, rental rates are picking up speed.

Normally, this is a happy situation. This is a clear indication that the US economy truly is improving. However, it does point to a very worrying trend. Americans are not in a hurry to buy homes.

You have to understand that a healthy increase in annual home sales provides a tremendous benefit for the broader US economy. When a family moves into a new home, a lot of money is released into the economy. A lot of debt is created, and this creates a chain of purchases which stimulates job creation throughout the broader economy. This isn’t happening.

While many Americans would like to say that they would like to own their own homes, most aren’t making the move. This should not be a surprise. There are three main reasons why renters aren’t moving out of apartments and moving into their own homes. First, housing construction has been slowing. Second, home inventories have been low and this shows no signs of improving. In fact, housing starts fell in the United States by 2% in January from the previous month. Moreover, building permits are decreasing. Add to these the bad memories produced by the great 2008 real estate crash and you can see why most people aren’t too eager to pull the trigger as far as buying a home is concerned. Even though more and more Americans have great jobs and it looks like US wages are poised to increase due to the tightening labor market, it appears that renters are in no hurry to become homeowners anytime soon.

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