What rising home values and flattening rents mean to buyers, sellers, and renters
By Erik J. Martin
Over the past few years, real estate headlines have been dominated by news of rents rising out of control in many markets. Yet new research shows rents are flattening; in fact, rent appreciation stabilized at an annual growth rate of 1.5 percent, clocking in at less than half the pace rents increased by last year, based on data published in Zillow’s December Real Estate Market Reports. Today’s median monthly rent payment is $1,403.
By contrast, home values grew 6.8 percent during the past year, per the same report, which found that the median home value in America is now $193,800, a notch below the highest value recorded in April 2007.
“The trends that helped define the 2016 housing market are having an effect on the start of the 2017 market,” said Svenja Gudell, chief economist for Zillow in Seattle. “Home values and rents have been trending in opposite directions for the past several months. It’s great news for current owners but could cause hardships for buyers. And for renters, it reduces the pressure to purchase in order to lock down a steady mortgage payment.”
Indeed, judging by the aforementioned numbers, common sense would tell you that renters should continue leasing, prospective buyers should sit out and wait for prices to drop and owners eager to sell their homes should list lickety-split.
Not so fast, some experts say. That logic may or may not apply, depending on each group’s circumstances.
“Flattening rents should allow for more renters to save for a down payment and closing costs on a home,” said Jamie Slavin, mortgage sales manager for Bellco Credit Union in Greenwood Village, Colo. “And mortgage interest rates are still very low. With home prices projected to continue their increase, renters and applicants who have been considering purchasing should actually get off the sidelines before rates and prices go higher.”
Additionally, owners have to remember that unloading their homes in a seller’s market can have repercussions.
“People looking to list their homes to take advantage of the market would probably need to pay more for the next home they would look to purchase,” Slavin said.
Hence, instead of being in a rush to list their properties, this could lead more owners opting for home equity loans and lines of credit to pursue renovations so that they can get the top dollar for their homes when they do sell.
Peter Vekselman, real estate investor and principal with RBP Investments in Atlanta, on the other hand, said prospective purchasers may want to sit out a few quarters.
“As more homes come onto the market and more new construction kicks in, prices should level off toward mid-year or fall, and that could mean a savings difference of several thousands of dollars,” Vekselman said. “Buyers will have to weigh the benefits of postponing a purchase to get a lower price as opposed to paying a higher rate of interest in the long-term.”
Ryan Hoffman, broker with Watervliet, N.Y.-headquartered Leverage Real Estate LLC, said it’s important for buyers, sellers and renters to understand their local market.
“A broad spectrum of data from Zillow’s national index is not enough,” Hoffman said. “Buyers should use this information as a starting point to compare to their immediate market. Doing research in your local neighborhood can reveal areas that lean more toward buyers. Not every market is a seller’s market, and there could be nuances at play that could save buyers money, such as certain style homes selling for much less than other types.”
Renters, meanwhile, may find it financially beneficial to wait and see where prices shakeout, especially with less housing supply available today, according to Hoffman.
Looking ahead, Gudell believes home prices will continue to head north as 2017 continues, with rent appreciation maintaining its slowdown.
“We will see continued high demand for housing, especially with many millennials starting to reach the home buying age and tight inventory lingering,” she said. “These two forces will keep home prices rising, albeit at a slower rate than we saw in 2016.”
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