As housing prices continue their relentless ascent and interest rates hit record highs, a new trend has emerged among younger generations eager to embrace unconventional solutions to secure their slice of the American Dream.
Dubbed “house hacking,” this practice involves renting out parts of owned properties to generate additional income, such as a sublet to help subsidize their mortgage.
A recent report by Zillow, surveying over 6,500 recent homebuyers between April and July 2023, uncovered a remarkable shift in attitudes toward house hacking.
Nearly 4 in 10 new buyers deemed this practice a crucial opportunity, marking an eight-percentage-point increase over the past two years.
The allure of house hacking is especially pronounced among millennials and Gen Z, with over half of those in the survey expressing enthusiasm for the concept.
The median house price surged to $413,874 in October, up 3.5% from the previous year, while the average 30-year mortgage rate skyrocketed to 8%, the highest level in 23 years, according to Zillow.
“In many places, you need to earn six figures to afford a starter home, so it makes sense for young people who are seeing how expensive homeownership is to want options,” Daryl Fairweather, chief economist at Redfin told CNBC.
Redfin’s own analysis shows that individuals need a salary of over $114,000 to afford a median-priced house in the US.
“Having the option to rent or have a roommate is important in an environment where there just aren’t that many small homes for sale,” Fairweather said, referring to the current shortage of affordable housing on the market.
“If you’re pricing your home competitively, renting out can be a reliable source of income because there’s no shortage of people looking for a place to live,” said Manny Garcia, a senior population scientist at Zillow.
Before plunging into house hacking, prospective buyers must tread cautiously. Financial institutions don’t factor in potential rental income when assessing mortgage eligibility, necessitating buyers to prove their ability to afford payments independently.
Navigating local ordinances and homeowners association regulations is also critical, ensuring compliance while renting out parts of a property. “There’s a lot of homework to be done to make sure that you’re pricing correctly when you’re posting your unit for rent,” Garcia advised.
In a housing market teetering on the edge of unaffordability, the notion of hacking into homeownership through creative income streams offers a glimmer of hope for younger buyers.