Is it time to rethink the traditional model for buying a home?

When turning on the news over the last year, the information we are faced with is overwhelming. Rents are high, home inventory is low, and mortgage rates are climbing. In 2021, home prices rose on average almost 19%, and at the end of the year the number of houses for sale hit a record low. Rent in some cities has seen a 40% increase over the last year causing many to use 30% -50% of their take home pay towards rent alone. (Financial planners will tell you to keep your housing cost to 20-25% of your income). A Pew Research survey shows that half of Americans think the lack of affordable housing is a major issue. With increasing mortgage rates, a market, and select choices, more Americans are worried they will never be able to afford a home.

Buying a home is the cornerstone of the American dream. Housing investments should appreciate in value but shouldn't appreciate above the rate of inflation. When you decide to purchase a home, there are great risks that you will take however these also come with great rewards. One aspect to consider when purchasing is a home is to make sure that the home is not appreciating above the rate of inflation. If it does, it will become harder for future generations to afford home ownership and there will not be enough homes to supply the demand.

So what options can we look at for a new way to own a home? Here are two different ideas that could be the next trend in home ownership.

Co-Living Units

Co-Working spaces have been around for a long time and the same concept can be an affordable housing option. This would be an ownership option where your private living space would be clustered around a shared area of small units where you would give up some private space for access to affordability. There are currently start-up companies that are building these small cluster homes that typically have monthly costs for 20% less than a studio apartment in the same area. There are still challenges with this concept, as the buyer would still need to come up with a down payment, but it should be at an affordable, reduced amount.

Public-Ownership Rental

An early-stage idea is Public-Ownership Rental. Public-Ownership Rentals are run by a non-profit, where you would get a share of ownership from your rent, without having to buy it on your own. This system does not require you to come up with a down payment or save for ten years before you could make a purchase, appealing to middle-class Americans who don't make enough to own, but make too little to be eligible for subsidies. This program would not compete for funds that go to extremely low-income housing individuals. With this option remaining in its early stages, there are still unknowns to this concept. What happens to your small ownership stake if you must move?

Ultimately your living situation can be whatever you are comfortable with. Whether that is renting, co-living units or purchasing a home as long as you feel safe and good about your decision, Co-Living units and public-ownership rentals are just two options to consider if you are wanting to purchase a home but stray from the traditional process.

If you would like to receive more information on making smart money moves for your future, be sure to contact us today!