With each annual rent hike, more renters are leaning toward homeownership.
Like a lot of people, Mark Stevenson has had it with rent prices.
His Walnut Creek, CA apartment complex raised the rent last year, and he recently learned that his 1-bedroom unit is headed up another $351, to $1,830 a month.
“Here’s my dilemma: Renew a 12-month rental lease complete with a 24 percent mugging, or buy a condo,” Stevenson said. “I’m looking to buy now.”
That could be a good financial bet, given the findings from Zillow’s latest Home Price Expectations Survey. A panel of more than 100 experts predicted:
- U.S. home values will rise 4.4 percent in 2015, to a median value of $187,040.
- Median U.S. home values will exceed their pre-recession peak of $196,400 by May 2017.
- 51 percent expect rental affordability will not improve for at least two years.
Already, renting is half as affordable as buying, something Danville, CA broker Kevin Kieffer of Keller Williams Realty hears about all the time.
“‘My landlord is getting ready to hike the rent by $200, and I’ve got to buy:’ Since 2001, I haven’t heard that more consistently than I am now,” Kieffer said.
The issue is basic economics: Demand is outstripping supply.
“Vacancy rates on rental units in the fourth quarter were down to 7 percent, the lowest in more than 20 years,” said David W. Berson, chief economist for Nationwide Insurance.
The squeeze could continue for years, said Berson, who participated in the survey.
Rents will rise as millennials strike out on their own — but not all of them will rent. “If a larger share start to move toward [buying], the rent increase will not be quite as rapid,” he said.
The situation is worse in some places than in others.
In Dallas, for example, a renter making the median household income spends 27.7 percent of it on rent. In Chicago, it’s 31.5 percent; in New York, 40.5 percent and in Los Angeles, 47.9 percent.
More than half of the survey panelists who had an opinion said the market will correct the nation’s soaring rents, requiring no government intervention.
“Uncle Sam can certainly do a lot, but I worry we’ve become too accustomed to automatically seeking federal assistance for housing issues big and small, instead of trusting markets to correct themselves and without waiting to see the impact of decisions made at a local level,” said Zillow Chief Economist Stan Humphries.
What does that mean for the average renter deciding whether to buy?
Homeownership certainly isn’t for everyone. Renters should consider how much they have in savings, how long they expect to live there and other factors — but they shouldn’t expect a break on rents.