The Bryan Ellis Investing Letter – However counterintuitive it might seem, research seems to indicate that high rents are preventing more would-be homeowners from actually purchasing homes, even if buying is more affordable than renting in their area. According to Zillow’s “Real Estate Market Report” for July, only 12 markets nationwide have rental and housing markets that are compatible when it comes to renters’ ability to save up for a down payment and ultimately purchase a house. Despite the fact that 94 percent of major metro markets are more affordable than they have ever been, rents are so high in 88 percent of those areas that renters will likely never save enough money to put 20 percent down[1]. At the end of July, renters nationwide were paying an average of 29.5 percent of their income toward rent and home prices were inching upward (6.5 percent year-over-year).
This problematic combination could mean trouble, warned Zillow chief economist Stan Humphries, warning that unless the job market improves and wages start to grow, “The future of the housing market could be trouble.” Humphries also noted that as mortgage rates begin to rise, more and more metro areas will become unaffordable, likely long before renters see any major change in their wages. “Wages need to grow more quickly,” he said, if homebuyers who are presently renting hope to put enough money away to buy. Finally, he added, millennials, who many analysts believe are the key to a true housing recovery, are being hit particularly hard by this toxic combination. Thanks to uncertain job prospects and “enormous student debt,” this particular segment of the population could well find itself in a permanent renting situation if things do not change.
WHAT WE THINK: Time to invest in rental property if you haven’t already! It looks like we’re going to have at least one generation of renters coming down the line, and maybe more as mortgage rates rise.
Do you think that housing is in trouble, or is the situation simply changing and evolving?
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Source: The Bryan Ellis Investing Letter
