As we head into the winter of 2015, there are some sweet spots to be aware of within the housing market. One of the most important of note for renters is that the demand for rental housing is not decreasing.
In fact, Harvard University’s Joint Center for Housing Studies and Enterprise Community Partners noted renters paying half their income in housing costs will increase by 11% in the next 10 years, putting the number to over 13 million people. Quite simply, this is in response to increasing rental costs as inventory remains limited in many states.
Where are the sweet spots?
While homeownership is at a 50 year low, the interest rates are still fairly low. For those renters who want to make the move to homeownership, the current rate environment is still favorable. However, new housing starts have also remained low, so as with rental inventory, for-sale homes are also in short supply. Currently, there are only 5.2 months’ worth of existing homes inventory as of the end of August 2015, according to the National Realtors Association (NAR).
New homes, according to the U.S. Census and U.S. Department of Housing and Urban Development, have 4.7 months’ worth of inventory, which is three weeks less than last year at the same time. This lower inventory means that renters may have a difficult time finding a home to purchase, even if they are otherwise ready to enter the marketplace. Renters need to be aware that they are being squeezed in terms of inventory on both sides of the coin.
However, there is hope that the reduced number of foreclosed properties will reduce the number of investors in the marketplace. Buyers will have less competition in the marketplace, so mortgages will start to replace cash home purchases. So if your goal is a home purchase within the next six months, be aware that housing inventory could begin to loosen up as the investors begin to exit the market. Housing prices are also increasing, so sellers might be more willing to enter the market. Interest rates can help to save you money as a balance to the higher home prices.
In terms of transitioning from renting to home ownership, the housing industry appears to be entering the sweet spots of inventory and low interest rates. Still, it is important to be a smart shopper and not to make yourself house poor in the process. However, if your credit score is still on the lower end of the spectrum, you may find it difficult to get funding for a home purchase. Thus, check out your credit score and if necessary, seek credit counseling to improve it. Lending standards are not likely to loosen any time soon, so credit scores are a critical part of home purchasing process.
For renters looking to purchase a home, the overall housing industry is moving towards a positive place for first time homebuyers. However, it is critical that your credit score and down payment are in order to take advantage of this current sweet spots in housing.