Rents have soared by the fastest pace in six years and the supply of rental housing remains constrained. Could 2015 be the tipping point, pushing more renters to home ownership?
Young Americans may prefer the flexibility of renting, however with the current price of renting, home ownership is becoming more enticing, financially. Fannie Mae and Freddie Mac recently announced new low-down payment loans, mortgage rates are still very attractive, and renting is just more expensive than owning in many markets.
One of the biggest barriers to home ownership today is that renters are paying so much to their landlords, they are having a difficult time saving for a house. That will only get worse in 2015. While developers in 2014 started the largest number of new rental units in 25 years, there is still a short supply, both in single and multifamily rental housing, and that means rents will continue to rise.
Compared to the pre‐bubble years, 1985 to 1999, buying a home is 30.8% more affordable now than during pre-bubble times, while renting a home is 19.8% less affordable. A homebuyer should expect to spend on their mortgage about 15.3% of their income which is very low compared to years past. A likely first time buyer, 23 to 34 year old buyers, should expect to pay about 17.4%. They make a little less money. Percentage of income renters should expect to pay, 29.9%! (see infographic) As stated earlier, if a lot of these young couples start moving into rentals they’re not going to have the money to save for buying a home.
Should I sign a lease? Or should I sign a contract to buy? A good realtor will have the information and the knowledge to help you find this answer.
Out of Freddy Mac this past month. People were asked about whether or not they were comfortable financially. How did they define “comfortable”? As “having extra money to go beyond each payday and spend money on things that they want. That’s comfort. I can pay all the bills and still have some extra money for the things I want. While only 38% of renters felt financially comfortable, 62% of homeowners did. That’s a gigantic disparity!
Sometimes people say, “well I’m not sure I want to buy a house because I feel like a slave to the mortgage payment.” Currently, it’s just the opposite. The people who own a house are less of a slave. They feel more financially comfortable. Freddy Mac is saying that. It’s their survey.
It's important to know about the expectation that interest rates will rise as well. Don't get caught in a situation where the interest rates begin to rise and your now stuck in a rising rental market, you can't afford, because you now can't afford to buy a home with such a high interest rate.
It basically comes down to this, buying a home with a 15 or 30 year fixed rate mortgage, you'll have the certainty and stability of knowing what your mortgage payment will be for the next 30 years, unlike rents which are predicted to rise over the next three decades.
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