Hornung: Renters might qualify as buyers

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Lane Hornung

Mortgage rates, especially after the tax deduction most homeowners can take, are as close to zero as they have ever been. Home prices, for the most part, are still affordable, but are beginning to appreciate.

In short, now is the time to buy.

If you think that is hype, do you think it is time to rent?

A recent headline that garnered national attention declared it is 45 percent cheaper to buy than to rent, although the caveat was it depended on the metropolitan market.

Still, from San Francisco to Denver to Boston, the trend is clear. Rents have been rising much faster than home prices. Rapidly rising rents on one side, stacked against the mortgage deduction and chance of appreciation on the homeownership side, is closing the gap between the cost of renting and buying, if not eclipsing it completely, in many cities.

It also is the topic in this month’s Question and Answer session between Lane Hornung, CEO and Co-Founder of 8z Real Estate and John Rebchook, of InsideRealEstateNews.com.

John: Lane, in some hot submarkets across the country, rents are rising 10 percent or more, while vacancies are falling to the lowest levels in more than a decade. What is going on?

Lane:  Market dynamics are at work. It is supply and demand. There is a lack of supply for rental properties, while demand is rising rapidly. That’s the story pretty much across the country.

John: What’s driving the rental demand?

Lane: Part of it relates to housing. If you look at the national homeownership rate, it pretty much peaked in the mid-to-high 60s before the collapse in the housing market. Now, it has settled to maybe 62 percent, from 67 percent or 68 percent. That five percentage point shift represents millions of people who were homeowners and are now renters.

John: Is it still the American Dream to buy a home, or do the Millennials (those born in the late 1970s and early 1980s) prefer the freedom of being a renter?

Lane: During the worst of the housing crisis, there were a lot of headlines saying that the Millennials didn’t want to buy. TIME Magazine declared that the American Dream of owning a home was dead. Since then, surveys have found that Millenials are as eager to buy a home as the Baby Boomers or Gen Xers. Maybe more so. Problem is, even if the millenials want to buy, their finding it difficult to actually do it.

John: Why?

Lane: Part of it is the economic environment. Unemployment is still high. They might be saddled with a lot of student debt. It’s also harder to qualify for a mortgage. Unfortunately, not everyone who rents a home can afford a mortgage or qualify for a loan.

John: What should a renter do who wants to buy a home?

Lane: First, there seems to be a bit of a tautology out there that they can’t afford to buy a home. There are a lot of programs out there for first-time home buyers. And as renters, they don’t have to worry about selling a home for a loss, preventing them from moving up. Yes, underwriting standards are not as loose as they once were, but they have eased a bit.

If a renter has decided they want to explore buying a home, they should ask a Realtor or a friend for the name of a good loan officer or mortgage broker who can tell them what their options are. They might be surprised to find they have a few options as far as loan programs.

They might start putting money away for a downpayment. They might consider a multi-generational living arrangement with other family members – parents, siblings, grandparents – who can help out financially. Even if they don’t contribute financially, multi-generational living is growing in popularity and may have social benefits.

John: Should every renter strive to be a homeowner?

Lane: Someone should only be buying a home because they think it is in the right time in their life to do so. But there may be a lot of renters out there who think there is no way they can afford a mortgage payment when in reality they can.

If they want to buy, they can get a roommate to help pay the mortgage payment, or rent out a room. When I was in graduate school, my wife and I rented out a room in our house so we could afford the mortgage. I bet it costs twice as much to rent that room today, even though the house hasn’t doubled in value.

John: Given today’s market conditions, with historically low mortgage rates, home prices well below their peaks in most markets, while rents are on a tear, is it a no-brainer to buy a home if you can qualify?

Lane: There are a lot of benefits to owning a home that aren’t just financial. There are a lot of psychological advantages to being a homeowner that go beyond any financial gain.

Still, my prediction is that if you look 15 years in the future, most people who are 25 or 30 today and buy now will be financially better off than those who choose to keep renting. Not that there is anything wrong with renting. But over time, owning a home is often the biggest foundation for building wealth. The home they buy today might not be the last one they own. Maybe they won’t sell their first home, and instead will rent it out to someone else and become what I call a “Collector.” People can end up collecting several homes through their life and build an investment property portfolio. The sooner you buy your first home, the sooner you can start to build wealth through real estate.

John: Thanks, Lane.

8z Real Estate is a sponsor of InsideRealEstateNews.com. A question and answer with Lane Hornung is a monthly feature of InsideRealestateNews.com. If you have any topics you would like Lane to address, contact John Rebchook at JRCHOOK@gmail.com. To learn more about Hornung’s company please visit 8z Real Estate

 

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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.

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