Posts filed under ‘Rent vs. Own’

Forsyth County Housing Still Considered Affordable

A recent RealtyTrac report finds that housing in Forsyth County is still affordable. From the Winston-Salem Journal:

RealtyTrac, a national real-estate research company, said average homeowners in Forsyth needed to put 22.9 percent of their monthly household wages toward their mortgage during the first quarter. The data is available only by county.

The affordability range was based on a wage of $883 a week for an $111,994 house with a 3 percent mortgage interest rate. Historically, the average homeowner spent 25.6 percent of household wages for the mortgage.

RealtyTrac has maintained a “buy” recommendation for the Forsyth housing market, based on a $1,059 monthly rent-to-own payment requiring nearly 30 percent of the average household income.

Here are numbers for other urban counties in the state:

For Guilford County, the RealtyTrac report determined 24.2 percent of weekly wages was required to buy a $144,500 home, the median sales price in the market.

For Mecklenburg County, the report determined 25.5 percent of weekly wages was required for a $208,000 home, the median sales price in the market.

For Mecklenburg County, the report determined 25.5 percent of weekly wages was required for a $208,000 home, the median sales price in the market.

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July 6, 2016 at 7:01 pm Leave a comment

Rent-to-Own Coming Back

The Wall Street Journal has an interesting story about the growing popularity of rent-to-own offerings:

Rent-to-own programs, once run mainly by small operators, were popular with cash-strapped consumers during the 1990s. They faded a decade later when easy lending made it possible for almost anyone to buy a home with no money down, but with lenders setting a higher bar, they are making a comeback.

For investors, it is a chance to profit off the recovering housing market. Consumers get a chance to lock in a home before they have the money together for a down payment. But the price may be higher rent in the interim and a higher purchase price the longer they wait to move from renting to owning…

Here’s how Home Partners’ program works. A consumer teams up with a real-estate agent to select a home in one of Home Partners’ approved communities, which tend to be suburban locations with strong school systems and with homes priced between $100,000 and about $725,000. Home Partners buys the home and leases it to the consumer, who has the right to purchase the home from Home Partners within five years in most places. During the renting years, the consumer is expected to repair his or her credit and save for a down payment, but the longer they rent the more they will pay to acquire the house.

For example, a house shown on Home Partners website has a list price of $449,975 in Chula Vista, Calif. The family that agrees to rent that house from Home Partners has the right to purchase the home for $472,035 after one year and would have to pay $573,762 if it waited five years before purchasing, a markup of 28% from the initial list price.

July 29, 2015 at 6:44 pm Leave a comment

Homeownership Rate Lowest Since 1967, US Rental Vacancy Rate at 6.8%

In 2Q15 the US homeownership rate fell to 63.4%, down from 63.7% in the first quarter of the year, the lowest it’s been since 1967.  The result has been an increase of about 2 million renter-occupied units in the last year, resulting in a vacancy rate of just 6.8% which is down from 7.1% in the first quarter. From BloombergBusiness:

Would-be homebuyers have been held back by stringent mortgage standards and wage growth that hasn’t kept up with surging home prices. The average household income in June was 4 percent below a record high set in early 2008, even as unemployment dropped to its pre-recession rate, according to Sentier Research LLC.

 “We’re still suffering the effects of the housing collapse and the financial crisis,” said Mark Vitner, senior economist with Wells Fargo Securities in Charlotte, North Carolina. “We may have another percentage point to go before we see a bottom” in the homeownership rate, he said.

Home values have jumped 34 percent since reaching a bottom in early 2012, making purchases more expensive for entry-level buyers. Prices in 20 U.S. cities climbed 4.9 percent in May from a year earlier, the S&P/Case-Shiller Index showed Tuesday.

July 28, 2015 at 7:45 pm Leave a comment

Future Looks Good for Apartment Industry for Years to Come

From the 6/8/15 Wall Street Journal:

The U.S. homeownership rate is below where it stood 20 years ago when President Bill Clinton launched a national campaign to encourage Americans to buy homes. Conventional wisdom says the rate, at 63.7%, is leveling off to where it was for decades before the housing-market peak.

But this is probably wrong, according to research from the Urban Institute, which predicts homeownership will continue to slip for at least 15 years.

Demographics tell the story.

Urban Institute researchers predict that more than 3 in 4 new households this decade, and 7 of 8 in the next, will be formed by minorities. These new households—nearly half of which will be Hispanic—have lower incomes, less wealth and lower homeownership rates than the U.S. average.

The upshot is that fewer than half of new households formed this decade and the next will own homes. By contrast, almost three-quarters of new households in the 1990s became homeowners.

The downtrend would push homeownership below 62% in 2020, and it would hold the rate near 61% in 2030, below the lowest level since records began in 1965.

You really should read the whole article. A couple of people who disagree with this assessment are quoted, but even they see the rate of home ownership stabilizing and staying lower than it was before the recession. There’s also some discussion about the impact on housing affordability, and interestingly it’s led by Ron Terwilliger who was the keynote speaker at this year’s Apartment Association of North Carolina education conference. He has some interesting ideas about reducing the mortgage deduction and moving some of those dollars over to help with rental housing. That would be a political hot potato, but it’s a sign of how different times are these days.
All in all, those signs bode will for the apartment industry from years, maybe even decades to come.

June 9, 2015 at 7:42 pm 2 comments

Where Are the Young Home Buyers?

It’s no secret that there’s a dearth of younger home buyers these days, but why are young adults still slow to move from renting to buying even though the economy is finally growing? Shane Squires of MPF Research wrote about some of the challenges faced by millennials:

For starters, income levels for those between 25 and 34 are down. Median household income for that demographic has declined between roughly 5% and 15% in real terms from 2000 to 2012 for every education level of the head of household, according to the National Center for Education Statistics. And in 2013, the real median net worth of households under 35 years old was just $10,400. That was approximately 32% below the level estimated in 2001, according to the Federal Reserve Survey of Consumer Finances…

He then cites some data showing that the combination of an increasing population and anemic job growth coming out of the past two recessions led to a highly competitive job market that prompted many students to continue on to grad school. That demand allowed universities to jack up tuition which led to more debt:

That brings us to the most commonly cited economic constraint for Gen Y – student debt. Over the decade from 2002-2003 to 2012-2013, the number of full-time undergraduate students rose from 9.1 million to 11.6 million people, according to College Board. That increased demand enabled higher education institutions to raise tuition prices 51% past the rate of inflation in the past 10 years,…

Add to that the increase in health care costs, which he cites as being 31% greater than the reported rate of inflation, and the increase in cost of staples and you can see that young adults face some serious obstacles to home ownership. Even the accelerated job growth of 2014 is recognized with a caveat:

Given that job growth has accelerated notably in 2014, with a much higher share being created in higher-paying sectors, these trends in income and net worth are bound to start improving to some degree. Though, considering that the appreciation of median home prices has vastly outpaced wage growth over the past decade, many in the Millennial generation will likely continue to find it more difficult to qualify for a mortgage than Generation X did 10 years ago.

It would be easy to point to the Great Recession as the primary cause for the struggle young adults will have in moving from renting to buying, but some of the contributing factors are the result of societal shifts that began a generation ago. For instance, the decoupling of income from worker productivity:

The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.

This is the kind of shift that does not happen overnight, and if that trend is to reverse it will not happen in a matter of years but in decades. What that means for rental housing providers in particular is that the falling rate of home ownership could be the new normal for a generation to come, which is good news for their businesses. On the other hand, if real median household income continues to decline then the demand for market rate units could stall and the demand for affordable housing units could skyrocket.

Obviously some policy changes could change this outlook. For instance if lending standards are relaxed again and if more affordable single family homes are constructed, then rental demand would obviously be impacted. Considering the lessons we learned when the housing bubble popped that first if is pretty big, and given the persistent problem of slow income growth any growth in home construction we do see probably won’t come close to what we saw in the late 90s through mid 00s.

Long story short – rental housing should continue to grow for the foreseeable future.

May 29, 2015 at 2:38 pm Leave a comment

Home Prices on the Rise

A front page story in the Wall Street Journal highlights a rise in home prices in 1Q15 and how that might affect the apartment market:

The number of metropolitan areas that saw double-digit percentage increases in home prices more than doubled during the first quarter, reflecting a mix of thin supply and strong demand that points to heated competition for home buyers.

Fifty-one metro areas posted year-over-year double-digit price increases compared with 24 metro areas in the fourth quarter of 2014 and 37 in the first quarter a year ago, the National Association of Realtors said Monday…

The accelerating gains are a welcome sign for the spring selling season—a crucial period for sales because families typically want to lock in to a school district by the end of summer—and an early indication that the moderating gains of the past few years might be picking up. But affordability concerns could keep many would-be buyers out of the market…

In Winston-Salem, N.C., where prices are up more than 15%, broker Eric Munger said that clients are becoming discouraged by the lack of inventory. He said one client recently decided to renew his lease for six months because he couldn’t find a house to match his criteria.

The story goes on to describe how some economists think home builders will ramp up to meet the increasing demand, but others think that won’t happen until the employment picture in the country improves:

But builders disagree that a lack of new construction the sole factor for an unbalanced housing market. They blame relatively weak demand because of a relatively sluggish job market, young people putting off homeownership and people hesitating to put their homes on the market because they still can’t get prices to match what they paid during the boom.

And even when the demand does come back, it will take builders a while to ramp up production:

But Mr. Hamill said it will likely take several more years before builders have the capacity to fully meet demand. “We lost a lot of builders, lost a lot of trade contractors, we lost a lot of people to other industries,” he said of the lingering impact of the 2007-09 recession.

All in all the news still looks good for the apartment industry.

May 12, 2015 at 2:41 pm Leave a comment

Realtors ID 7 Million People Who Won’t Likely Buy a Home Again

The National Association of Realtors has released a report that basically says that 7 million of the 9.3 million people who were foreclosed on during the recession will not likely buy a home in the future:

According to a new study by the National Association of Realtors (NAR), nearly 1 million of the people whose homes were foreclosed upon during the financial crisis have already repurchased homes. Another 1.5 million are likely to buy again within the next five years.

But that leaves out of the market nearly 7 million of the 9.3 million who lost their homes to foreclosure between 2006 and 2014.

“They won’t be a significant factor to the housing market going forward,” NAR Chief Economist Lawrence Yun told Bloomberg Business. “The majority of the 9.3 million won’t be coming back.”…

But one thing that will dampen the demand for many of the homeowners that went underwater is that mortgage underwriting standards have become much stricter, so people who, for example, used a subprime mortgage to purchase a home will be unlikely to re-enter the market.

“Many of them should not have gotten a mortgage to begin with,” NAR’s Yun said in his interview with Bloomberg Business.

April 27, 2015 at 3:59 pm Leave a comment

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