CA Medium Home Prices by County

7 reasons rentals rocking housing market

Buying a home is 35 percent cheaper than renting in the long term. Still, an increasing percentage of Americans are choosing to sign a lease rather than a deed. 

By Beth Braverman, The Fiscal Times | October 12, 20136

Next stop: Maybe not home ownership. (Courtesy Shutterstock)

 

Home sales have finally begun to slow after a red-hot summer that saw prices soaring so quickly that some began to worry about the return of a housing bubble. But despite the recent housing gains, the country's home ownership rate has continued to fall. Just 65 percent of households in the first half of this year owned their homes, the lowest level in 18 years, and a significant decline from the record high rate of more than 69 percent reached at the height of the housing boom in 2004. Even though buying a home is 35 percent cheaper than renting in the long term, an increasing percentage of Americans are choosing to sign a lease rather than a deed. Experts predict home ownership will fall even further in the next few years. "We could see levels we haven't seen since the 1960s," says Patrick Newport.  Although home ownership rates are likely to rebound a few years from now, the gains will be slow, and housing economists don't see them ever again reaching the unhealthy "bubble" levels hit in the early 2000s.
Here's why:

1. There's a lingering impact from the foreclosure crisis
Foreclosure activity peaked in 2010, and August foreclosure starts were at the lowest level since December 2005. Just because the worst of the foreclosure crisis that led to the housing bust is behind us, it's not so far in the rear view that it's no longer impacting the market. Many of those who have lost a home to foreclosure have no desire to be a home owner again; but even those who do will have to wait years before they can purchase another property. Foreclosures remain on a credit report for seven years, which can make it extremely difficult for those consumers who have been through one to get favorable terms on another mortgage.

2. Lending conditions remain tight
Potential buyers without a foreclosure on their credit report are finding it tough to get a mortgage. Even with a down payment of 15 percent to 25 percent, nearly a third of Americans will not qualify for a mortgage under today's lending standards, according to a study by Zillow.

3. Investors have reshaped the market
Cash-rich institutional investors jumped into the market when homes were at their cheapest and built up massive real estate holdings that they've since turned into rental properties. In addition, many people who were underwater on their homes but needed to move became "accidental landlords" renting out their first home so that they could move to a second. The result: Four million more single-family homes are available for rent than there were prior to the recession, meaning potential renters have far more options.

4. Boomerang kids are going to rent first
Thanks to high unemployment rates and heavy student debt loads, an increasing number of millennials have moved back into their parents' homes after college. Last year, 36 percent of the country's 18- to 36-year olds lived with their parents — the highest share in at least 40 years, according to a Pew Research study released in August. Experts believe those millennials will eventually move out, but they're not going to jump straight from mom and dad's couch into home ownership. "Those young people are probably going to rent before they buy," says Jed Kolko, a housing economist with Trulia. That could push the home ownership rate down even further.

5. Fewer people are married with children
Just 21 percent of current households are married with children, a decline from 24 percent in 2000. Meanwhile, the number of single households has reached 27 percent, more than double the percentage of a few decades ago, according to the Census Bureau. "There's less of a need now for people to stay put and buy a house with space for all their kids," says Jim Lapides, a spokesman for the National Multi-Housing Council. "They're more interested in living close to work and being able to walk places."

6. Potential buyers are worried about mortgage rates
Nearly two-thirds of potential buyers told real estate brokerage Redfin that rising mortgage rates have negatively impacted their ability to buy a home. A fifth of buyers said they had slowed the pace of their home search in response to rising rates. Currently mortgage rates are about 4.5 percent, but the Mortgage Bankers Association predicts they'll reach 4.9 percent by next year.

7. Buying isn't the "American Dream" anymore
The American Dream used to be synonymous in the American psyche with home ownership. Not so anymore. Today, the most popular definition of the American Dream is retiring with financial security, followed by being debt-free, according released in September by Credit.com. Just 18 percent said that buying a home was the American dream.

Buying Still Cheaper Than Renting

Homeownership Now A Tougher Call In San Francisco Bay Area, Honolulu, Orange County, And New York

SAN FRANCISCO, September 19, 2013 – Trulia (NYSE: TRLA), a leading online marketplace for home buyers, sellers, renters, and real estate professionals, today released its Summer 2013 Rent vs. Buy Report, revealing whether buying a home is more affordable than renting in America’s 100 largest metropolitan areas. Looking at homes for sale and for rent on Trulia between June 1 and August 31, 2013, this study compares the average cost of renting and owning for all homes on the market in a metro area, factoring in all cost components including transaction costs, taxes, and opportunity costs. For the full report and methodology, see here.

Rising Mortgage Rates Narrowing Rent vs. Buy Gap
In the last year, the mortgage rate for a 30-year fixed-rate loan rose from 3.75 percent to 4.80 percent,[1] raising the cost of buying a home relative to renting. In fact, homeownership is now 35 percent cheaper than renting nationally, down from being 45 percent cheaper one year ago. Yet despite their current upward climb, mortgage rates will not tip the housing market nationally in favor of renting over buying until rates hit 10.5 percent nationally, given current home prices and rents.

San Francisco Bay Area Almost Tips in Favor of Renting
While homeownership is still more affordable than renting in all of the 100 largest metros, rising mortgage rates may soon turn the tide. Buying a home is now less than 10 percent cheaper than renting in San Jose and San Francisco– a dramatic shift from being 31 percent and 28 percent cheaper a year ago, respectively. Even in Detroit, where purchasing a home is a no-brainer, buying has narrowed to being 65 percent cheaper than renting in 2013, versus being 70 percent cheaper in 2012. If rates keep rising and current rents and prices remain flat, San Jose will become the first housing market to tip in favor of renting once mortgage rates hit 5.2 percent.

Top 5 Metros Where Buying a Home is a Tougher Call
#	U.S. Metro	Cost of Buying vs. Renting (%), Summer 2013	Cost of Buying vs. Renting (%), Summer 2012	Mortgage Rate Tipping Point When Renting Becomes Cheaper Than Buying, Summer 2013
1	San Jose, CA	-4%	-31%	5.2%
2	San Francisco, CA	-9%	-28%	5.7%
3	Honolulu, HI	-10%	-24%	5.8%
4	Orange County, CA	-20%	-34%	7.0%
5	New York, NY-NJ	-21%	-31%	7.5%

Top 5 Metros Where Buying a Home is a No-Brainer
#	U.S. Metro	Cost of Buying vs. Renting (%), Summer 2013	Cost of Buying vs. Renting (%), Summer 2012	Mortgage Rate Tipping Point When Renting Becomes Cheaper Than Buying, Summer 2013
1	Detroit, MI	-65%	-70%	32.8%
2	Gary, IN	-58%	-63%	20.6%
3	Memphis, TN-MS-AR	-55%	-61%	19.0%
4	Cleveland, OH	-54%	-60%	20.0%
5	Kansas City, MO-KS	-53%	-57%	18.0%

Note: Negative numbers indicate that buying costs less than renting. For example, buying a home in Detroit is 65% cheaper than renting in 2013. Trulia’s rent vs. buy calculation assumes a 4.8% 30-year fixed-rate mortgage with 20% down, itemizing tax deductions at the 25% bracket, and 7 years in the home.

Should You Be Renting or Buying A Home?
Trulia’s new Rent vs. Buy Calculator provides house hunters with an easy-to-use tool to help figure out whether they should rent or buy a home. Applying the same math behind the Rent vs. Buy Report, the calculator allows consumers to enter in actual prices and rents for homes they are considering, along with the mortgage rate they qualify for, their tax bracket, and how long they plan to live in the home. They can also change other assumptions such as annual maintenance and insurance costs. To start calculating whether it is cheaper to rent versus buy, go to www.trulia.com/rent_vs_buy/.

PRE-APPROVED QUOTES

• “While it’s hard to believe after the recent spike in mortgage rates, it’s still more than one-third cheaper to buy a home than to rent,” said Jed Kolko, Trulia’s Chief Economist. “Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting.  This is because rates remain well below historical norms, and prices are still slightly undervalued, too.”

• “If mortgage rates rise above 5 percent, the first housing markets to tip in favor of renting would be San Jose, San Francisco, and Honolulu,” said Jed Kolko, Trulia’s Chief Economist. “Nationally, however, mortgage rates would have to reach into double-digits before renting becomes cheaper than buying, and even at 20 percent, buying would still be on par or cheaper than renting in Detroit, Gary, and Cleveland.”

More Buyers are Purchasing with Cash

Real Estate 411:

Multiple Offers Increased as the Market Became More Competitive By Oscar Wei, Senior Research Analyst

To be competitive in a housing market with tight inventory and a restrictive lending environment, many buyers who wanted to have an edge over other buyers opted to make an “All Cash” offer for their home purchase.   Since an “All Cash” transaction does not have to go through lengthy lending approval process, the escrow process is faster and is less likely to fall through, making the offer more attractive and more assured.

According to results based on C.A.R.’s 2012 Annual Housing Market Survey, “All Cash” buyers has been on the rise since the mid of 2000’s, increasing from 11 percent in 2005 to 30 percent in 2012.  Almost one-third of all home buyers paid with all cash in 2012, which is more than 3 times what it was in 2001 when “All Cash” buyers were merely 8.8 percent. The share of all cash buyers in 2012 was also nearly double the long-run average of 15.1 percent since 1998.

 

For more information about the 2012 Annual Housing Market Survey,

Patrick E. Rosenthal 
Aloha Bay Realty
(510) 932-9134 - Direct
(800) 749-9134 - Toll free
(510) 559-9249 - Fax
DRE  #01315655

www.YourHOMEinvestment.com

"Your Trusted Advisor, I'm not just Your Agent."

If you know someone who is considering buying or selling a home, please give me a call. I will provide professional & courteous service along with knowledgeable guidance through the process.