While the number of foreclosures and delinquencies has been on a downward slide, particularly compared to a year ago, affordability in the housing market remains elusive. Home prices have been on the rise. In areas of high demand, these increases are quickly removing the affordability component for both renters and home buyers.
When a home buyer struggles to purchase a home, they reduce their discretionary income and decrease their monthly buying power. If that home buyer turns landlord, they pass the costs of the home mortgage onto their tenants. Renters in particular are often put in the biggest bind in regards to affordability. For them, rents can easily go up at every lease renewal. Home buyers can at least set their payments for the next 15 to 30 years, giving them a slight advantage when it comes to affordability.
Affordability for a renter to become home buyer
The question for any renter is when do they pull the trigger and become home owners? Depending on the area or state, the time could be right now. Interest rates have remained low despite various financial crises throughout the world, in particular the Chinese recession and Europe’s struggles with Greece. While these events seem far away from a small town in Michigan or Kentucky, the interest rates do reflect current global financial events.
Yet the Federal Reserve of the U.S. has determined that they are going to allow the interest rates to rise, although they have not yet defined a time period for this to take place. For those who are renting and have been able to save a down payment, now it is important to weigh the options available to you for a home purchase. While home ownership is not for everyone, it can be a way to create a consistent monthly payment that is not subject to the whims and demands of the marketplace. At the same time, home prices are rising. While it may be at a fairly modest pace, housing is once again a positive investment. Long term home ownership can provide an additional nest egg, as part of a larger and more comprehensive investment strategy.
However, for renters that are not in a position to purchase, it is important to be an advocate for yourself with your landlord. If you have been a quality tenant, use this to your advantage when discussing rents prior to your lease renewal. For the landlords that are adamant in a rent increase, then use your power of renewal to secure upgrades or additional amenities. Be aware that your landlord may call your bluff and you may find yourself moving. For those that are particularly fond of a unit or location, negotiation may not be able to achieve a significant savings, but it can still assist in achieving a slight reduction.
In the end, whether a renter or home buyer, it is important to carefully weigh the financial climate and your personal finances. Affordability is becoming rarer, particularly in urban areas. So it is up to the individual to be proactive and willing to move if necessary to keep rental costs within their budgetary limits. Local governments are also working to maintain affordability within their borders. Do not hesitate to take advantage of any local programs designed for affordability purposes. Affordability will continue to be a hot topic, regardless of the city or town. But for those in the best position to take advantage of it, the interest rate environment may be at its most favorable for home purchases.