By Dan Pipito & Brian Davis
Living alone and loving it? You’re actually not alone – according to the Census Bureau, a full 28% of U.S. households are solo occupants, up from 17% in 1970. With Americans living longer, marrying later and divorcing often, the increased incidence of solo households only makes sense.
This trend has particularly accelerated over the last three years, as artificially-joined households in the aftermath of the recession “unbundled.” Unbundling occurs when households which were joined (or bundled) for financial reasons only – say two single young professionals who would prefer to live alone but who moved in together because they took pay cuts – go their separate ways once more. Another frequent example is the college graduate who reluctantly moved back in with mom and dad, because she could not find a job, but has now found a job and moved out of the nest once and for all (she hopes).
This rise in solo households has several implications for real estate investors. First, it means that the household growth rate is faster than would be explained by population growth alone (read: higher demand for housing). Second, it means that smaller homes have a growing demand, and one-bedroom homes are not as “functionally obsolete” as was once thought.
Nor are they all renters. Buying real estate alone has been growing in popularity over the past fifteen years, primarily with women. According to the National Association of Realtors, 25% of real estate buyers last year were solo, and of those, nearly twice as many women bought solo as men. While having a second person’s income can help borrowers qualify for a mortgage, the flipside is that solo buyers are not held down by another’s spotty credit, loans or debts.
When the time comes for single people to tie the knot and upgrade to a larger home, they can keep their prior single homes as rental properties, and let tenants pay off the mortgage. The longer they own the property, the lower their mortgage debt and (theoretically) the higher the property’s value, making these smaller ex-homes perfect long-term assets.
And who knows? Perhaps these once-solo occupants will be back one day to live in the old single-pad again, as empty-nesters reliving their (possibly misspent) youth.