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Don’t Get Caught in the ‘Renter’s Trap’

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Don’t Get Caught in the ‘Renter’s Trap’ | Simplifying The Market There are many benefits to homeownership, one of top ones, is being able to protect yourself from rising rents and lock in your housing cost for the life of your mortgage. The National Association of Realtors (NAR) just released their findings of a study in which they studied “income growth, housing costs and changes in the share of renter and owner-occupied households over the past five years in metropolitan statistical areas throughout the US.”

Don’t Become Trapped

The study revealed that over the last five years, a typical rent rose 15%, while the income of renters grew by only 11%. If you are currently renting, this disparity in growth could get you caught up in a cycle where increasing rents continue to make it impossible for you to save for a necessary down payment. The top 5 markets where renters have seen the highest increase in rents since 2009 are:
  • New York, NY (50.7%)
  • Seattle, WA (32.4%)
  • San Jose, CA (25.6%)
  • Denver, CO (24.1%)
  • St. Louis, MO (22.3%)
Homebuyers, who were able to purchase their home over the same five-year period and lock in their housing costs, were able to grow their net worth as home values have increased and their mortgage balances have gone down.

Know Your Options

Perhaps you have already saved enough to buy your first home. HousingWire reported that analysts at Nomura believe:
“It’s not that Millennials and other potential homebuyers aren’t qualified in terms of their credit scores or in how much they have saved for their down payment.  It’s that they think they’re not qualified or they think that they don’t have a big enough down payment.” (emphasis added)
According to Freddie Mac:
“Depending on their credit history and other factors, many borrowers can expect to make a down payment of about 5 to 10%. And new 3% down financing options for qualified borrowers could mean a down payment as little as $6,000 for a $200,000 home.”

Bottom Line

Don’t get caught in the trap so many renters are currently in. If you are ready and willing to buy a home, find out if you are able. Have a professional help you determine if you are eligible to get a mortgage.
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Don’t Let Your “Luck” Run Out

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Don’t Let Your “Luck” Run Out | Simplifying The Market The 30-year fixed mortgage interest rate is currently still below 4%. Many buyers may be on the fence as to whether to act now and purchase a new home, or wait until next year, believing they still have time to lock in a low rate. If you look at what the experts are predicting over the course of the next 12 months, it may make the decision for you.

Predictions for 2016 2Q:

Even an increase of half a percentage point can put a dent in your family’s net worth.

Let’s look at it this way…

The monthly payment (principal & interest only) on a $250,000 home today, with the current 3.86% interest rate would be $1,173. If we take that same home a year later, the Home Price Expectation Survey projects that prices will rise about 4.4% making that home cost $11,000 more at $261,000. If we take Freddie Mac’s rate projection of 4.7%, the monthly mortgage payment climbs to $1,354. Some buyers might not think that an extra $181 a month is that bad. But over the course of 30-year mortgage you have spent an additional $65,160 by waiting a year.
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Location, Location, Location

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Location, Location, Location | Simplifying The Market A recent Demand Institute report revealed “nearly half of all American households plan to move at some point in the future.” Seventy-five percent of those surveyed in the report cited one or more ‘location-related reasons’ for their eagerness to move. Here are the top 5 reasons:
  1. Safer Neighborhood – 30%
  2. Closer to Family – 27%
  3. Change of Climate – 26%
  4. Closer to Work – 25%
  5. For a New Job – 23%
While the majority of Americans (74%) will move within their home state, for the 26% planning to call a new state home, it is important to know that prices in each state are appreciating at different rates and waiting to buy or sell your home could cost you more in the long run. The map below was created using the FHFA’s latest Home Price Index and shows year-over-year price gains in each state. Year-Over-Year Price Gains | Simplifying The Market  

Bottom Line

If your plan for 2015 includes relocating to a new state, meet with a local real estate professional in that area who can help you find the best fit for you and your family’s needs.
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