Typically, mortgage debt is considered “good” debt (if there can be such a thing) by lenders and others looking at your credit. It shows potential creditors that someone in the past has found you creditworthy enough to let you borrow a large sum of money to purchase a house.
Over time, home prices have generally trended upwards, and in some places, have blown sky high. The rising real estate market is a blessing to those who bought a home 30 years ago in an area like Seattle, San Francisco, New York City or Washington, D.C. Some lucky homeowners have seen their home rise in value 10-15 times (or more) what they purchased it in the late 80’s.
Those looking to buy into the real estate market now, at least in urban or suburban areas, kind of get the short end of the stick when it comes to housing prices. While the housing market will probably keep going up (albeit slower than in the past), we have seen that it is quite possible for housing prices to come crashing down, such as in 2008.
This leads to an increase in the number of people renting their homes, which isn’t necessarily a bad thing for someone just starting their career, in order to give them the flexibility to easily move. What we are seeing though is long term home ownership rates on a steady decline.
Home ownership rates in the U.S. have dropped in each of the last 11 years, which has not been seen in the history of modern America. The only reason it is as high as it is (back in the summer in dipped under 63%, comparable to the mid-1960’s) can be traced back rural housing growth, where prices are much more affordable. Housing prices have become so unaffordable for many people that they are forced to rent their homes/apartments. Some people look at rent as literally throwing money away compared to a mortgage, but the reality is much more complicated.
Those planning on staying in one place for a long period of time are usually better off purchasing a home, but now it seems as though even the opportunity to do so is becoming less of a sure thing.
Building a significant net worth without most individuals’ biggest asset – their primary residence – becomes difficult and it can lead to financial strain later in life. This has a domino effect on the rest of the economy as a whole, leading to a situation where a large segment of the population end up becoming renters their entire lives.