It takes high courage to brave the low temperatures and make that plunge.
Similarly, record levels of consumer confidence and an environment of low unemployment might make 2018 a great time for prospective homebuyers to brave the jump into the ownership pool… especially if they’re renting presently. Here are three good reasons why:
Rent costs are snowballing
Renters have some chilling facts to consider. For example, Rent.com reported that 88 percent of surveyed property managers raised rent in the past year. Fifty-three percent of survey respondents said they were more likely to bring in new tenants at higher rates than renegotiate new leases with current tenants.
Further, Zillow.com reported that in the second quarter of 2017 rents as a percentage of income were at a historic high of 29.1%. That proportion has snowballed over time and is up 13 percent from the share of income devoted to rent between 1985 and 2000.
Worse yet, the Urban Institute has reported, “Over a quarter of renters, or 11.1 million households, are severely cost burdened, spending at least half their income on rental housing.”
The percent of income required for homeownership is melting
On the other hand, it might warm you to know that Zillow also reported that the percent of income required to buy a median-priced home in the second quarter of 2017 was just 15.8 percent. That number has melted like a snowman on a spring day and is down nearly 33 percent from the historic share of income spent on mortgages between 1985 through 2000.
The bottom line is that in many markets buying a home may cost significantly less than renting one.
Interest rates remain low but are expected to rise
Finally, buyers should not be frozen into inactivity just because of reports that mortgage interest rates are creeping glacially forward after years of record lows in the three percent range.
It is true that the rate for a 30-year fixed mortgage recently broke the four percent mark, but if you look at rates in a historical context, it is still a great time to buy. For example, in the 2000’s interest rates averaged about six percent, and in the 90’s about eight percent. In the 80’s interest rates were in the 13 percent range and people still bought homes!
Industry experts anticipate interest rate increases in 2018, perhaps resulting in five percent by the end of the year. That means that now may be the time to buy a home because the longer you wait the more expensive it will become to borrow.
Perhaps, like me, you think it’s a little nuts to join the Polar Bear Club and jump into ice cold water on a 15 degree day. But rising rents and interest rates make right now a perfectly sensible time for renters and other prospective homeowners to take the plunge and join the club of homeowners.