“This is the big picture,” Salmon said. “You know that homeownership is falling and you probably think it has something to do with millennials and student loans. And it is to do with millennials and student loans, but it’s also much much bigger than that.”
Homeownership for the under 35 age population is down 8 percent since 2004. For the 35-44 population, it’s down 10 percent. For the 45-54 population, it’s down 8 percent. And even for the 55-64 age group, it’s down 7 percent, according to Salmon.
“It is down everywhere,” Salmon said. “It is a long-term trend. There is no indication particularly that it’s coming to an end.”
As Salmon noted, student debt is an issue for many prospective homeowners. Student debt is a big reason that home sales are sputtering. The vast majority of homeowners are college graduates according to Salmon and if you have student loans, there’s a high probability that you are going to default on those loans at some point.
“If you default on your student loan, you basically can’t get a mortgage,” Salmon said. “That’s a whole huge chunk of people who used to be natural homebuyers who are no longer natural homebuyers because they can’t get a mortgage.”
Conversely, if you’re interested in paying down your loans as quickly as possible, you likely can’t afford to take on a mortgage payment as well, Salmon said.
But again, the story is much bigger than just student loans, Salmon said. In a broad sense, however, homeownership is just becoming less attractive.
“If you’re thinking of a house as an investment, that’s great but you can’t afford it,” Salmon said. “Or, if you can afford it, it’s not an investment because it’s going to go down in value.”
It’s easy to buy a home if you are rich and it’s much easier to buy a home if you already own a home, which has led to existing landlords owning much of the liquidity required to buy a home. Investors are buying up homes and then that home is ultimately landing in a “massive portfolio of investment properties.”
“What you find actually is that a lot of the liquidity and financial interest in this space is decreasing the homeownership rate,” Salmon said.
But despite conventional wisdom, that’s not actually a bad thing, according to Salmon. If you’re a natural renter, you want to be able to rent. He thinks that homeownership rates might have been too high in the past.
“If you think about what makes sense in the current economy, it kind of makes sense in many ways not to own,” Salmon said.
The median job tenure for individuals under 45 is less than five years and the amount of time individuals expect to stay in their job is less. A mortgage is a 30-year commitment, and you’re entering into a contract to pay a substantial amount of money each month, without knowing if you’ll be able to stay at your current income level.
“Incomes go down as much as they go up, and you don’t want to find yourself in a situation where you get yourself a new job that doesn’t pay as well as the old job, and you’re forced to sell this property that you invested so much time and emotional energy in,” Salmon said.