No Relief In Sight For Renters
A lot of headlines are devoted to the real estate market given that we have been in a historic bull market. For homeowners, the headlines have been overwhelmingly positive. For instance, significant attention is paid to how much home equity is rising across the board. In fact, home equity increased nearly three trillion dollars in quarter two alone. For home buyers, the headlines have been filled with a lot of doom and gloom. Headlines have focused on how competition from home buyers is so fierce that bidding wars are the norm. If stiff competition were not enough, headlines like to focus on how home prices are reaching all-time highs. However, one group that doesn’t get the attention they deserve are renters. The fact is that renters probably have it worse than anyone and no matter what the headlines say, it is better to be a home buyer than a renter.
Renters Face Serious Challenges
Any way you slice it, those who are being hardest hit by today’s real estate market are renters. While rising home prices are getting all the flashy headlines, not enough attention is being paid to how much rent is increasing at the same time. As each month passes, rent becomes more and more expensive. As time goes on, individuals and families are spending more of their monthly budget on housing expenses than ever before.
Increases in rent are happening across the nation. However, some markets are being hit harder than others. The Boston real estate market is experiencing some of the highest rent increases in the nation. According to researchers at Self Financial, the Boston real estate market has seen the seventh highest increases in rent in the entire nation. This is not only for Boston proper. This also includes Newton, Quincy, and Brockton. The researchers reached this conclusion by comparing data from the 2010 census to the 2020 census. What they found was that over that ten-year period median income increased 36.2%. Unfortunately, over that same period rent increased by 52.2%. That means that every year rent is taking up more and more of income leaving little for investments, needs or even fun.
While the data from Self Financial is shocking and quite depressing, it is still over a year old and does not paint a complete picture. The truth is that things have gotten even worse for renters over the past year. As we see the worst of the pandemic get further and further in our rearview, landlords are increasing prices dramatically. In many markets, it is quite common for landlords to increase rent by as much as 40% upon lease renewal. This is causing serious pain for renters, many of whom can barely afford rent at current prices. The idea of paying 40% more is not only untenable, but it is nearly impossible. Quite frankly, renters have been most adversely impacted by today’s real estate market, but are not getting the attention they deserve.
The Solution for Renters is Becoming a Homeowner
Unfortunately for renters, the trends are pretty clear that they should not expect any relief when it comes to rent prices. Fortunately, becoming a homeowner is a great way to get out of the misery of constantly rising rents. While many headlines have been devoted to the difficulties of buying a house in today’s market, the truth is that the market is improving. Home buyers are facing improving market conditions.
The first indicator that the situation is better for home buyers than renters is that home prices have plateaued. While rents are increasing dramatically, there is a good chance that today’s home prices will remain flat. This helps buyers know what they need to save in order to get a down payment for a home loan. Furthermore, once you buy a house, you lock in your housing expenses for the life of your home loan. Massachusetts rent prices will continue to increase, but if you have a fixed-rate mortgage, your monthly home loan payment will remain the same. Buying a house now will provide you with much more budgeting stability because you will no longer be held hostage by future rent increases.
The second indicator that it is better to be a homeowner than it is a renter is that mortgage rates remain low. Today’s rates will allow you to lock in a home loan that will make buying a home affordable for years to come. One good sign that today’s mortgage rates are fantastic for home buyers is that current rates are lower than the rate of inflation. As all other goods and services become more expensive, your home loan and mortgage payments will continue to become a better value.
Final Thoughts
While news outlets focus on the difficulties facing home buyers, the reality is that renters have it far worse than everyone. Home buyers can take advantage of rock-bottom mortgage rates and are seeing home prices plateau. On the other hand, renters are watching their rent increase as much as 40 percent. It is not surprising that many homeowners spend less money on their mortgage payments than renters spend on their rent. However, even if you do end up spending more on a mortgage payment, at least you are paying yourself. As you pay down your home loan, you start to build equity, which is an asset that you can use. Rent, however, is not an asset. It is a liability. No matter how much rent you pay, you will never become wealthier from it. Your landlord will, but you will not. Buying a house allows you to invest in yourself.
The bottom line is that the situation has improved greatly for home buyers while it is getting more dire for renters. If given the choice of paying rent or making a mortgage payment, it is clear that it is better to have a home loan. Boston, like many other markets, is not going to give renters a break anytime in the near future. Homeowners, however, have a real opportunity right now given today’s mortgage rates. If you want to take advantage of this opportunity and stop renting, contact us. The team at Peoples Choice Mortgage is here to help you make your dream of owning a home a reality.
