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Where Are Rents Headed?

Posted by the KCM Crew on November 13, 2012 www.KCMblog.com

When deciding whether or not to buy a home, one consideration will be the cost of alternative housing options. Renting an apartment is one such alternative. Where are rental prices heading over the next few years?

Rental prices usually increase by about 3 percent annually. Trulia just released their Trulia Rent Monitor where they revealed that rental prices have increased dramatically in the last year.

“Nationally, rent gains continued to outpace home price increases in October, rising by 5.1 percent.”

Based on the concept of supply and demand, we believe rental prices will continue to substantially increase over the next few years. The long-run 30-year average increase in multifamily rental households is 200,000 each year. Over the next few years, those numbers will more than double to over 500,000 each year. Freddie Mac in their latest report, Multifamily Research Perspectives, projects housing demand going forward.

“Given assumptions consistent with economic growth slightly slower than long run averages, multifamily demand is likely to be in the range of 1.7 million net new renter households between now and 2015.”

The cost of owning a home will begin to increase as both prices and mortgage rates are expected to inch up in 2013. Perhaps now is the perfect time to lock in your long term housing expense by purchasing your own home.

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Americans Predict Rents and Home Prices to Increase

From The KCM Crew at http://www.KCMBlog.com

We report on Fannie Mae’s Quarterly National Housing Survey every ninety days. Fannie Mae also does a monthly survey covering different aspects of the housing market.

Here are some record numbers we found interesting in Fannie Mae’s March report (emphasis added).

  • Thirty-three percent of respondents expect home prices to increase over the next 12 months, the highest level over the past 12 months.
  • The percentage of respondents who say it is a good time to buy rose to 73 percent, the highest level in over a year.
  • Forty-eight percent of respondents think that home rental prices will go up, the highest number recorded to date.
  • On average, respondents expect home rental prices to increase by 4.1 percent over the next 12 months, the highest number recorded to date.

Doug Duncan, chief economist of Fannie Mae, capped the report off by stating:

“Conditions are coming together to encourage people to want to buy homes. Americans’ rental price expectations for the next year continue to rise, reaching their record high level for our survey this month. With an increasing share of consumers expecting higher mortgage rates and home prices over the next 12 months, some may feel that renting is becoming more costly and that homeownership is a more compelling housing choice.”

National Housing Survey 2012

Posted by The KCM Crew: www.KCMBlog.com

Each quarter, Fannie Mae releases their National Housing Survey. They survey the American public on a multitude of questions concerning today’s housing market. We like to pull out some of the findings we deem most interesting each time it is released. Here they are for the most recent report:

84% of the general population believes that owning a home makes more sense than renting.

The Most Important Reasons to Buy a Home

When we talk about homeownership today, it seems that the financial aspects always jump to the front of the discussion. However, the study shows that the four major reasons a person buys a home have nothing to do with money. The top four reasons, in order, are:

  1. It means having a good place to raise children and provide them with a good education
  2. You have a physical structure where you and your family feel safe
  3. It allows you to have more space for your family
  4. It gives you control of what you do with your living space (renovations and updates)

The Home as an Investment

Though most people purchase a home for non-financial reasons, everyone realizes there is a money component to homeownership. Here is what they said on this issue:

  • 63% of the general population believes that homeownership is a ‘safe’ investment.
  • 53% believe that homeownership has more potential as an investment than any other traditional asset class.

Rent vs. Buy

We are always interested in the difference people see in renting vs. owning.

  • 64% of renters have aspirations to someday own their own home
  • 70% of renters think that owning is superior to renting

Bottom Line

Our belief in the value of homeownership grows each time this survey is released.

Rents Rising as Rental Availability Shrinks

Posted by The KCM Crew at www.KCMBlog.com

Because of the challenges in the current economy, many families have either decided to rent or been forced to rent. How has this impacted rental options and the cost of the available options?

HousingWire recently quoted Paul Dales, senior economist with Capital Economics:

“As a consequence of Americans being less willing and less able to buy a home, the number of households in rented accommodation is set to rise by at least 850,000 a year over the next few years.”

The price of anything is determined by supply and demand. As demand increases, the price of an item will increase unless there is an equal increase in supply. The article mentioned above said:

“Dales said in his research that rental vacancy rates will fall again in the future, pushing prices up. The median rent is already up to $712 per month—well above the average monthly mortgage cost of $647, Dales reported.

He estimates vacancies in the home-rental market will push average rental rates up as much as 5% by early 2013.”

How many markets will be impacted? A new rent index offered by Zillow:

“…showed year-over-year gains for 69.2 percent of metropolitan areas covered.”

Bottom Line

Rents are increasing and will continue to do so for the foreseeable future. In many parts of the country, buying a home might make more sense as you can lock in your housing expense for the next thirty years.

Where Are Rents Headed?

From The KCM Crew at http://www.KCMBlog.com

People are delaying the decision to buy a home because they are not sure where prices are headed. If they buy and prices continue to soften, they feel that they will not have purchased at the optimal moment. They reason that, if they sit and wait, they can’t be hurt. This thinking assumes that a non-decision comes without consequence.

The normal retort to this thinking by people bullish on real estate is that prices may soon turn to the positive or that interest rates will start heading upward. Buy now before the cost of buying increases! Today, we want to look at this from a different angle. We want to alert our readers that their housing expense is about to increase if they continue to rent.

Currently, in most parts of the country, buying is less expensive than renting. Plus, purchasers can lock in their housing expense for the next thirty years by buying now. They will get a sensational price and a record low interest rate. What will happen if they continue to rent?

The Alternative to Buying

If a family continues to rent, they are looking at a housing expense which will rise with the market. Rental costs increase by 3% a year historically. But today’s rental market favors the landlord to a greater degree. Below is a graph of how rental prices have increased recently and where they are projected to go over the next few years based on a report from Marcus & Millichap.

 

Bottom Line

Hoping to save by delaying the purchase of a home may result in higher housing costs while you’re waiting, thus achieving the exact opposite result. Check with a local real estate professional to determine the best option for you and your family.

Homeownership: Building Family Wealth

From KCM Blog

 The Joint Center for Housing Studies at Harvard University just released a study, America’s Rental Housing: Meeting Challenges, Building on Opportunities. The study discusses the need for a greater supply of quality rental units in America. We agree. However, there were a few nuggets of information found in the study we want everyone to know.

American’s Belief in Homeownership Has NOT Fundamentally Changed
There seems to be some feeling that homeownership has lost its luster and perhaps is no longer a component of the American Dream. Harvard explains:

  • To date, attitudes about owning have become only slightly more negative while attitudes about whether now is a good time to buy are little different than before the housing boom. In the latest Fannie Mae housing survey from October–December 2010, the vast majority of respondents—including renters—continued to believe that homeownership makes more financial sense than renting. In addition, nearly two-thirds of all renters surveyed reported their intention to buy homes in the future.

Homeownership Creates Wealth
Because prices have fallen dramatically in many parts of the country in the last five years, some are too easily dismissing homeownership’s role in building family wealth over the last century. The study explains:

  • In addition, renters have only a fraction of the net wealth of owners. Near the peak of the housing bubble in 2007, the median net wealth of homeowners was $234,600—about 46 times the $5,100 median for renters. Even if homeowner wealth fell back to 1995 levels, it would still be 27.5 times the median for renters.

The recent fall in prices can’t wipe out the 100 year history housing has as a good long-term investment.

Bottom Line
The study was promoting the need for the construction of more rental housing for the average American family. However, when it came to a discusion on building wealth, Harvard offered:

  • “And for individuals as well as businesses, owning rental properties is an avenue for wealth creation.”

And how do these individuals and businesses create that wealth? Owning the real estate and collecting rent from their tenants to offset the mortgage payments. Build your family’s wealth – not your landlord’s. We believe OWNERSHIP almost always makes the most sense.

 

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