Real estate mogul and author Grant Cardone predicted that the future of homeownership will look drastically different sooner rather than later.
Is Homeownership a Pipe Dream for the Average American?
In an economy that has seen home prices double in some areas over the past few years, Americans who wish to become homeowners are running out of options.
Interest Rates Contribute to Rise in Rentals
Interest rates have continued to rise, leaving would-be buyers in the position of either purchasing outside of their means and becoming house-poor or turning to area rentals until the market cools off.
One Expert’s Opinion
That cooling may not be happening any time soon, according to one real estate expert. Grant Cardone says he doesn’t think home prices are going to come down at all. He expects that an industry shift will be the solution that allows the average American to finance a home purchase in the coming years.
“Longer Mortgages” On the Way, Says Cardone
“The savior of America will not be lower prices,” Cardone said. “It will be longer mortgages.”
Will the 100-Year Mortgage Come to Fruition?
“In your lifetime, you will see mortgages go from 30 to 40, 50, and maybe even 60 years. You could, if you live long enough, see a 100-year mortgage in America,” he continued.
How Much Does Mortgage Length Matter?
This claim may seem like a stretch in a country where most mortgages are for 30-year terms, but the length of a mortgage does not seem to have much bearing on how long the mortgage will actually last.
A Look At the Statistics
Statistically, people move on after spending an average of eight years in a home. Once a home is sold, the bank gets its money back, and the mortgage is paid off.
Mortgages Rarely Last the Full Term
Many people choose to refinance their mortgages, either to get a better interest rate or to take cash out of their available equity, so those mortgages get paid off when a new one is opened.
The Trade-Off
If banks begin offering longer mortgage terms, it would not necessarily tie a buyer to that mortgage for a century unless something dramatic happened to the real estate market. That said, for long-term mortgages to be profitable to lenders, interest rates and fees would likely reach new heights.
Renting As a Lifestyle Choice
Cardone also highlighted that he thinks more Americans will decide that renting is the better long-term choice, and he doesn’t just mean houses. The bestselling author says that renting is likely to become a normal part of many industries, and people will choose that option to avoid a long-term commitment on most things.
“America Will Become a Renter Nation”
“America will become a renter nation,” he said. “You will rent your cars, you will rent where you live, you might even rent your clothes in the future.”
The Current Status of Rental Markets
Despite being predictions on Cardone’s part, these concepts aren’t as futuristic as his claims suggest. Many companies now offer rental subscriptions to items like clothing, shoes, tools, sporting equipment, baby gear, and more.
When Renting Makes Better Financial Sense
People have started embracing the idea of renting items that they don’t plan to use forever. If the item won’t have a long-term value, why should anyone pay full price for it?
What Are People Renting?
Baby gear like bassinets and infant swings can only be used for a few months and don’t tend to take a lot of wear and tear, so it makes sense to spend less on a rental. Sports equipment is built to last – think skis and snowboards – but isn’t typically used more than a couple of times a year for most people.
Will Home Rent Prices Continue to Increase?
Housing and vehicles aren’t new to the rental market, either, and it seems their popularity will only continue to increase. This could be bad news for some Americans who rely on rental homes because they either can’t or don’t want to purchase a home.
A Hope for Stagnation
Over the past year, rental prices have increased nearly 4% across the country. Most experts believe that this increase will stagnate in the coming year, but many are still concerned that they will soon be priced out of rental homes that meet their needs.
Low Wages; High Rents
As it stands, the federal minimum wage has remained at a standstill for fifteen years. Some states, like California, have increased well above the federal standard but have been met with consternation from a subset of taxpayers.
Why Do People Oppose Minimum Wage Increases?
Reasons for opposing minimum wage hikes vary but include concerns like the impact of higher wages on prices and potential job losses.
An Uncertain Future
But low wages have made it difficult for renters to keep up with rising costs, from food to housing and everything in between. If Cardone is right, an increased demand for rental homes could drive prices up even higher, creating a nightmare situation for low-income renters.
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