In 2014, U.S. renters collectively paid over $441 billion in rent, up nearly 5 percent or $20.6 billion from 2013, according to a report done by Zillow. Annual rent inflation also hit 3.5% in November 2014, the highest rent acceleration in six years, according to the Bureau of Labor Statistics and it is projected to increase 4 (more) percent in 2015. The average monthly lease rate is now $1,124, according to data collected by Reis, Inc. This is the highest number since Reis started collecting and analyzing commercial real estate market stats in 1980. Nationally, half of all renters spend more than 30 percent of their income on rent, according to a 2013 report by the Harvard Joint Center for Housing Studies.
Low vacancy rates and limited supply have been major causes of the higher rent costs for Americans. According to the National Association of REALTORS®, the national rental vacancy rate dropped below 5 percent in 2014, a low not seen since the first quarter of 1995. Where some young people enjoy renting, a recent survey by Fannie Mae showed 9 in 10 would prefer to own a home. They had been held back by tight lending standards that have made it tough to get around their heavy student debts and light savings. The Census Bureau says that just 36 percent of Americans under age 35 own a home, the lowest since 1987, and as recently as 2007, that figure was 42 percent.
In an example from Kiplinger, a couple’s mortgage payment of $1,150 in Austin, TX, which included private mortgage insurance, was still less than the previous $1,200 a month they were paying in rent. With rents still on the rise, and millennials getting sick of Mom's basement, it will likely entice more buyers to enter the market in the upcoming months. This past December, Fannie Mae and Freddie Mac announced programs that would allow first-time buyers to get homes with down payments of just 3 percent, instead of 5 percent, and relaxed credit standards that should allow more young people to buy homes.
According to NPR, The Federal Reserve, headed by Janet Yellen, is expected to begin raising interest rates later this year. Industry economists generally expect mortgage rates to reach 5 percent by year's end. That would still be quite low by historical standards, but after having such cheap mortgages for so long, buyers need to be prepared for them to actually go up this year.
If you’ve been on the fence between buying a home and renewing your rental lease, 2015 may be a good time to explore the possibilities of home ownership. Want to know what it takes to get out of the rental circle this year? Download our free Mortgage 101 Handbook for the basics on home buying and financing. If you are ready to take the next step and get pre-approved, feel free to contact one of our mortgage bankers.