Developer Steve Poe tells the story that around the time he mothballed the RiverPark Place project in 2008, potential tenants had to have better credit to rent an apartment in Louisville than to buy a home. He decided it wasn’t the right time to add more apartments to the city’s inventory.
Things have shifted more back toward buying since then, but it’s still a major decision whether to rent or buy.
While the tax incentives and freedom to customize the property to suit your tastes – not to mention the idea that home ownership is basic to the American dream – add up on the plus side for buying, thousands of Americans found themselves unable to wrest themselves from their mortgages during the recent financial crisis.
Ralph and Joan Ross, who now rent at RiverPark Place, took a beating on their Florida mortgage when he was offered the chance for promotion to district director for the Small Business Administration, involving a move to Louisville. Unsure of how many years Ralph will continue working – they plan to retire in a home they own in Omaha, Neb. – they weren’t eager to take on another mortgage.
The idea that Millennials, too, favor the freedom to move easily to change jobs has been much in the news lately. Indeed, the share of homes sold to first-time buyers dropped to 33 percent in 2014, down five percentage points from 2013. They make up the smallest proportion of the market in 27 years, according to the National Association of Realtors.
And a study by lending giant Fannie Mae found that among “prime” first-time buyers — married couples in their early 30s with a college degree, a child and household income of at least $95,000 — home ownership fell by more than eight percentage points from 2006 to 2012.
Pat Simmons, director of strategic planning in Fannie Mae’s economic research group, points to tight lending requirements, high student debt, an unsettled job market, but also a changing view of home ownership.
“Baby boomers saw a decline of nearly $1 trillion in home value during the bust,” Simmons told the Los Angeles Times. “Younger folks saw that experience among their parents. I think that’s going to leave an impression.”
Online real estate site Zillow, however, challenges the idea that young buyers eschew home ownership, pointing out that young people are marrying later and having children later – pivotal life events that often lead to home buying.
“It’s very difficult to come up with a down payment when so much of your monthly paycheck – especially on an entry-level salary – is going to your landlord instead of into your savings. Buying conditions are getting better every day, and in time the allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into homeownership,” Zillow says in a report.
A recent report from the Financial Industry Regulatory Authority found 74 percent of renters have household incomes below $50,000 compared to 41 percent of homeowners, and 39 percent of renters are married compared to 63 percent of homeowners.
However, according to Zillow: “Our economists believe that 2015 will be an important year for first-time homebuyers, as Millennials who have delayed home ownership overtake Generation X as the largest generational group of homebuyers.”
Meanwhile, another Fannie Mae economist says consumers remain leery, saying 2015 “likely [will] not be a breakout year for housing,”
Zillow maintains that buying makes more sense than renting in most parts of the country – California and New England excluded.
A New York Times calculator puts the magic number at $961 – if you can rent the home you want for less than that, then renting makes more sense.
One bedroom apartments in Louisville rent for $922 a month on average and two bedroom apartment rents average $847, according to the site Rent Jungle.
That could explain the preference for buying in Louisville, in which 64.5 percent of households own their home, compared with 63.4 among 75 other cities, according to a report from Louisville’s Metropolitan Housing Coalition. Louisville’s ownership rate, however, was 70.3 in 2003, but dipped to 61.7 percent in 2011.
Housing prices have increased 6.9 percent in Louisville since 2009, the report states.
The site Mortgage Calculator puts the median price of an existing single-family home is $133,000, compared with the national average of $172,900.
With the apparent desire, and need, to satisfy both renters and buyers, RiverPark Place is now pre-selling condos in its Edgewater at RiverPark Place tower, adding to its luxury apartments for renters.