What it will take to turn renters into buyers
By Erik J. Martin
Despite rising rent prices nationwide, mortgage interest rates remaining at near historical lows and positive job growth numbers, many renters aren’t buying into the American dream of homeownership — at least for now.
A new survey by the National Association of Realtors suggests that elevated home-price growth and low housing supply are resulting in slightly weakened confidence among renters as to whether or not now is a good time to buy a home: among the respondents polled between July and September, 78 percent of homeowners and 60 percent of renters (down from 82 percent and 62 percent in March, respectively) indicated that now is a favorable time to purchase a home.
Experts say the aforementioned findings are understandable, considering current market conditions.
“Facing their own price inflation through rising rents, many renters are having a hard time saving for a down payment. For those ready to transition to homeownership, lack of supply and rising home prices are dimming their confidence,” says Adam DeSanctis, economic issues media manager for the National Association of Realtors. “And despite job creation picking up in recent years, homebuilding hasn’t kept pace. The lack of new construction means fewer homes available for sale and more buyers competing for shrinking existing inventory.”
Todd Huettner, president of Huettner Capitol in Denver, says the survey’s results don’t surprise him.
“Renters are worried that they will get caught buying a home at the top of the market, and many get slapped in the face by the reality of the home buying process – from trying to qualify for a loan, finding an agent and searching for a home,” Huettner says. “It seems easy in theory, but actually trying to buy a home involves far more effort and stress than many renters realize. The result is that renters started this year (2016) as excited and confident prospective buyers and became frustrated and lacking in confidence by the end of the summer. Plus, the election noise sowed uncertainty about the economy and jobs, which could also have an impact on their confidence.”
For renters to feel more positive about purchasing, “a much-needed boost in new home construction for both move-up buyers and first-time buyers is required to alleviate price growth and preserve affordability,” DeSanctis says.
Matt Murphy, CEO of Chime, a real estate marketing firm in Palo Alto, Calif., believes renters should get off the fence and strongly consider purchasing before the end of winter.
“The winter season is a great time to buy a home, as the amount of buyers decreases and sellers are usually under pressure to sell,” says Murphy, who adds that continued low interest rates may not remain this low for much longer.
“Now is as good a time to buy as any if the situation is right for the person’s specific situation,” Huettner says. “If a renter will be in their home for several years to cover the transaction costs, and they have a strong financial plan to put them in a position to succeed as a homeowner, they should look at buying. They should also look at their rent compared to the cost of buying.”
In many cases, owning a home is usually cheaper than renting, says Andrew Saltman, principal broker of Carbon Capitol in Jacksonville, Fla.
“For example, I was working with a client paying $5,000 a month in rent who had an opportunity to purchase what would be an even nicer residence and pay only $3,000 a month for a mortgage,” Saltman says.
© CTW Features