For decades, we worked to own homes— the bigger, the better. And ownership was the default choice for homes, cars and everything else.
Things are different today. Homes are shrinking in size for the first time in years, more people are renting and car leasing is on the rise. Meanwhile, some of the fastest-growing companies promote sharing rather than owning. A look into these new consumer trends offers insight into our changing times.
In 2014, the median size of American homes clocked in at 1,870 square feet—more than twice the size of an average American home in the 1950s.
While still large in historic terms, the 2014 median represents a year-over-year decrease. “The typical home purchased last year was a little smaller than in years past,” says Jessica Lautz, director of service research and communications at the National Association of Realtors®.
Lautz says that home sizes could continue to drop. “The largest cohort of Millennials (typically defined as anyone born between 1980 and 1995) are 24 years old, and most first-time home buyers are in their early 30s,” she says. “Research shows that first-time home buyers purchase smaller homes.”
Research also shows that today’s young people have a preference for city living. That could mean an uptick in smaller urban homes like condos, co-ops and townhouses in the coming years. And young people aren’t the only ones foregoing McMansions: The 50+ crowd is also showing a preference for smaller homes that are close to amenities like parks and shops. Some people are taking it a step further and joining the Tiny House movement.
The relatively young age of the large Millennial generation, coupled with the lingering effects of the recession, also means more people than ever are renting. “Homeownership is at its lowest level since 1995,” says Lautz. “It’s not just among the young—it’s across the board.”
This news doesn’t surprise Kevin McCann, director, Market Intelligence, at Erie Insurance. “Diminished home values and foreclosures left many people no longer viewing homes as attractive investments,” he says. “Others are unable to secure a home loan. When combined with employment uncertainty and the Baby Boomer generation’s desire to downsize, it’s easy to understand why renting is on the rise.”
In 2013, leasing accounted for 23 percent of new car sales—and it’s growing among all age groups.
Leasing luxury cars has always been common. Yet between 2008 and 2013, the leased share of compact cars more than doubled while the share of subcompact cars nearly tripled. Experts predict that leasing will continue to account for even more new car growth in the coming years, thanks to attractive leasing offers and the appeal of less upfront cash and lower monthly payments.
If you lease, there are some things to keep in mind when it comes to insurance coverage. “Your leasing company may require you to carry higher limits on your liability protection and lower deductibles on your physical damage coverage,” says Dave Freeman, vice president, Personal Lines Underwriting, at Erie Insurance.
If your leased car is in an accident, it’s possible that you could owe more on the car than what it’s worth. That’s where gap insurance steps in to bridge the difference and pay your leasing company what you actually owe on the car.
“Most leases today automatically include gap insurance,” says Freeman. “If your lease doesn’t offer it, talk with your insurance agent about gap insurance.”
The sharing economy
One of the hottest consumer trends is the “sharing” or “peer-to-peer” economy. Today, more and more people are renting or borrowing goods rather than buying and owning them. Borrowers typically deal directly with sellers, which can save money by cutting out middlemen. (Some websites that facilitate these exchanges do charge commissions, however.)
“Everyone wants to avoid costs associated with a middleman,” says McCann. “They also want to avoid buying things they only need occasionally. In many ways, the sharing economy is a story of consumer empowerment.”
This story, however, comes with some caveats. For starters, there are unresolved questions about how to tax and regulate the sharing economy. There’s also the issue of insurance. While many of these companies offer coverage, others offer nothing or only minimal levels of coverage. That could leave you with a serious coverage gap.
If you participate in the sharing economy, find out what kind of insurance is automatically offered. Then talk to a professional at Pardridge Insurance – you local Erie Insurance Agent – to see if there are coverage options for your situation. (Erie Insurance recently became one of the very first companies to offer coverage for people who use their personal cars as taxis through rideshare companies like Uber and Lyft.*)
The times may be changing. But whether it’s your home, your car or something you own, Pardridge Insurance is always there to give you trusted guidance on how to protect it.
*Currently available in Illinois and Indiana.
Written by: Amanda Prischak, www.eriesense.com