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Tag: rent vs buy

  • Do rising rents make homebuying more attractive?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Zillow reports that American renters are now paying 30.2% of their income for rent, the highest percentage in recorded data, which dates back to 1979. This is up almost 1% from last year and much higher than the long-term average of 24.4%. The 30% share is important because above this level economists say housing costs are unaffordable.

    On the flip side, the Zillow report says that the average homeowner only spends 15.1% of their income on a housing payment. While that huge gap makes for wonderful marketing fodder, I think the number is questionable. The median home price is about $231,000, and the median income is about $53,000. Even if I grant Zillow that the average homebuyer is able to afford a 20% down payment, I still get a $900 principal and interest payment, which is more than 20% of the homebuyer’s income. And I haven’t even considered property taxes and insurance.

    But all real estate is local. In Austin, for example, the median home price is $255k, and the median income is a bit over $52k. Assuming a homebuyer has a 20% down payment, she’s looking at a total housing payment that is more than 35% of her income. The average rent payment in Austin is $1445, which is 33% of her income.

    So, while rising rents are a strong incentive for renters to consider buying a home, you may not be able to use a lower housing payment as a deal clincher.

  • Will Millennials save spring home buying?

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    As we enter the spring home buying season, could the millennial generation finally move out of their parents’ basements and become the home buying generation? Recent data are conflicting, but there is reason for hope.

    Millennial homebuyers have several factors working against them. Wages have stagnated since the financial crisis while home prices have recovered in many markets favored by young adults. The result is reduced affordability. Student debt also is a problem for many Millennials. Recent surveys corroborate the anecdotes – Millennials are worried about their debt loads. Even if they could afford a home, they’re more interested in reducing debt than taking on a mortgage. Finally, those debt payments make it harder for Millennials to save for a down payment. As a result, homeownership among young adults has dropped more than 6 points to 36.8% as more Millennials are doubling up with friends or just living with parents to save on expenses.

    But they’re also choosing to rent, and that may be an impetus for some to consider home buying. Home ownership is at a 20+ year low, whereas rental occupancy is at a 20+ year high. The result: Rents are rising quickly in many of the same areas Millennials prefer. So, while rising home prices make a buying home less affordable, in most areas, home buying is still a better financial decision than renting.

    Two other recent trends suggest we could see home buying pick up. First, wages finally may be growing. While the data trend is only a few months old, recent announcements by several major employers that they’re raising their minimum wage suggest the trend may continue. Second, recent census data shows that household formation finally is gaining steam. While most of those new households are renters, those rising rent payments could encourage more to consider a home purchase.

    Encourage fence sitters to try our Rent vs. Buy calculator on our Web site. It’s eye-opening how much more expensive renting can be.

  • Fannie housing survey shows increasing optimism

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The Jan Fannie Mae National Housing survey reveals increasing optimism among US consumers, which may portend a good spring homebuying season. Three results really jumped out at me.

    First, 29% of respondents said their income is significantly higher this year, and 48% expect their financial situation to improve in the coming year. Both of these figures are all-time survey highs. Also interesting, the gap between those who expect their situation to improve and those who expect it to stay the same expanded to 9 points.

    Second, the share who thinks now is a good time to sell reached a survey high of 44%. Two of the biggest impediments to the housing recovery have been stagnant incomes and lack of housing inventory. These first two survey results may indicate a lessening of these barriers.

    Finally, the share who says they would buy if they were going to move jumped 5 points to 66%, and the difference between potential buyers and renters gapped out to 37%. That means more than twice as many folks would buy as rent.

    Fannie has been conducting this survey since 2010. The survey highs are exciting, but I’ll caution you that I’ve noticed the responses about personal finances seem to mirror consumer sentiment reports. As such, the numbers are liable to fall again next month. However, I think the sell/hold and buy/rent numbers are affected by many other factors and, thus, may provide more hope for more robust spring homebuying.