Why Renters Should Think About Buying Now

Marc Jablon boca raton real estate , boca raton real estate agent , buyer's agent , Real Estate , Real Estate Tips Leave a Comment

Renters all across the state are facing the exact same problem: steady and substantial increases in rental rates. Due to a variety of market factors, the cost of renting has skyrocketed around the country, and Florida is no exception.

For the first time in years, these increased rental rates are making it more practical for many people to buy rather than rent. This opening in the market isn’t going to last long – changes on are their way. But for those renters able to take action now, this could well be the best time to buy that we will see for a number of years to come.

Rental rates continue to climb.

Rental rates are on their way up. In many cities – especially those in South Florida – the cost of renting is climbing far faster than the average income. Housing affordability for renters has become a serious issue in many parts of the country – especially in cities like San Francisco and New York – and is likely to develop into a more serious problem here sooner rather than later.

It would be a stretch to say that this is the best time to buy in recent history: it’s not. Prices have risen steadily over the past couple of years – many regions in the state have seen double-digit gains in median home values in just the past twelve months. And while this rapid growth seems like a great reason to buy on its own, such high levels of appreciation aren’t expected to continue for much longer. Most predictions say that future home value gains will  be much closer to historic norms, which simply moved along with inflation numbers.

Should buyers worry?

Some buyers have expressed concern about recent gains in the market. They see a resemblance to conditions in effect before the collapse of the housing bubble. At first glance, this may seem like a good reason to worry. However, these factors differentiate the current correction in home values from a bubble that’s ready to pop

  •       Stricter federal regulations prevent banks from making very risky loans
  •       Home builders are not rapidly increasing the supply of new houses
  •       Institutional lending standards are typically far stricter than they were before
  •       Buyers are getting predictable fixed rate mortgages rather than variable rate products

These differences suggest that we won’t see double-digit gains in home values forever, nor should we expect property prices to fall as they did during the great recession. There are far many more safeguards in the market now.

Interest rates rising

Another reason buyers are still out in force, and perhaps the most pressing, is the fact that interest rates appear to be on their way up. For the past few years, we’ve enjoyed the lowest average interest rates on real estate in recent history. The cost of a 30-year fixed rate mortgage even dropped below 3.5% for a while over the summer. For comparison, in 2005 and 2006, at the height of the housing bubble, a great interest rate was typically anywhere between 6% and 7%.

Over the past month or so, however, we’ve seen interest rates begin their gradual rise. Just after the election results came in, average 30-year fixed mortgage rates have steadily risen to right around 4% – and most experts foresee that number continuing to climb after the first of the year.

While this 0.5% increase in the average interest rate may not sound like much, it can definitely add up to extra costs over the life of a mortgage. And once it begins to move even higher, the extra monthly interest payments may, in turn, decrease the price of a home that a prospective buyer would then be able to afford.

Examples of rate cost increases:

Consider these changes in cost: purchasing a $200,000 home with a 20% down payment and financing the rest at 3.5% interest would equate to a monthly payment of around $715. Those days appear to be over, at least for the immediate future.

At 4% interest the monthly payment climbs to almost $765 – nearly $50 more a month. At 5% interest – only a modest increase from where we’re at today – that same home would cost over $855 a month. That’s nearly $150 more in interest payments every month for the next 30 years. But that is reality as rates climb.

Rents will rise along with mortgage rates

Even though the best days for the currently growing market may be behind us, there’s still time for renters and other first-time homebuyers to get into the market before a larger rate jump occurs. Once that happens, finding an affordable home will become more difficult for first-time home buyers. Because rental demand will increase, rents will also rise. So if you’re tired of throwing away money on rent that just keeps going up, now may be the time to get serious about becoming a homeowner. Mortgage rates may be on the rise, but they are still at historic lows.

Marc Jablon

New Harbor Realty

[email protected]

561-213-6139

http://www.JablonTeam.com

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Marc Jablon