While the recent rental trend has been consistent spikes in rent, it appears the tide might finally be turning. According to Zillow, rents grew an annual 4.5 percent in October, which was down from 5.3 percent in September. This is also a significant decrease from their reported high of 6.6 percent in July. This data appears to indicate that rental prices are beginning to level out.
Many families still struggle with rental prices
Does this mean the affordability struggles of many families will be disappearing in this year? Not likely, as the economy has not seen strong income increases. Depending on the industry, some individuals are only recently reaching pre-recession levels regarding their income. Thus, the squeeze on household income to cover housing costs will continue until there are significant increases in inventory, as well as a larger increase of renters moving into the arena of home ownership.
However, down payment costs are trending upwards. Why is that? Home prices are increasing, so 20 percent of a $150,000 home is going to larger than 20 percent of $100,000 home. Therefore, the continuing struggle for renters who want to purchase a home continues to be the down payment. FHA loans allow a borrower to finance a home with a lower down payment, but the mortgage insurance included as part of the loan also increases the monthly payment. Currently, an FHA loan requires the mortgage insurance to be maintained throughout the life of the loan, even if you have achieved 20 percent equity in your home.
FHA loan option
Thus, if you choose the FHA loan option, it might be prudent to consider refinancing after reaching 20 percent equity to eliminate those additional insurance costs. While interest rates are still averaging under 5 percent for those with solid credit ratings, it is clear the trend is one of upward movement. Mortgage lenders are anticipating a potential Fed rate hike in early 2016, although the Fed has not committed one way or the other. Inflation, or the lack of it, have been playing a part in their non-commitment.
Still, these increasing home prices have the added benefit of coaxing those on the fence about selling to put their properties on the market. While available inventory is best determined by your specific area, it is clear that inventory overall is beginning to move slowly upward. Yet an oversupply can depress home prices, so this current market with a still tight inventory has kept the pressure on home prices. Will inventory remain tight? Only time will tell.
Overall, the picture for renters is that of rental prices beginning to even out. This may be a benefit for them, since home prices are also trending upward. Thus, 20 percent down payments are getting larger as a result. Renters hoping to move into the home ownership category need to continue saving. However, if you want to take advantage of the current low interest rate environment, an FHA loan may be your best option when the 20 percent down payment still out of reach.