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Kristina and David Mahon, living in a one-bedroom apartment, were keen to purchase a bigger house. The duo ultimately gave up after exploring Pompano Beach, Florida, the market for over a year (and missing out on 20 homes in the process).
With a 10-month-old kid in tow, the couple is now renting, a move Kristina claims they were “forced” to make.
Kristina adds, “I feel like I’m squandering money on something that isn’t mine.” The rental”options were restricted, and the costs were much over what we were willing to pay for a rental.”
According to many in the business, the Mahons’ is a popular scenario these days. House seekers who are fed up with bidding wars, increasing costs, and shrinking alternatives abandon the buying market in favor of renting.
“Given the present market and atmosphere,” Kaley Tuning, a Native Realty agent who worked with the Mahons, says, “it’s usual.” “It simply gets aggravating for the average shopper.” Buyers have paid up to $40,000 above the asking price and still been outbid.”
Unfortunately, making the switch to renting isn’t always straightforward. While the move may give disgruntled purchasers some breathing room while they wait out the competitive home market, it frequently means joining an equally hot rental market, where increasing rents and diminishing availability are significant worries.
Rents are increasing.
It’s no secret that this year’s housing market has been very heated. Since last spring, the purchasing market has exploded in practically every country. Home prices have increased by 17% year over year, while inventory levels have improved but remain near record lows.
However, the rental market has been more mixed. Vacancies in large cities surged, and prices fell during the onset of the epidemic, but demand for suburban rentals skyrocketed. Rates are rebounding throughout the nation, with many locations seeing rents rise far above pre-pandemic levels.
According to Realtor.com, the average rent is now $1,633 per month, up to $169 from last year and over $200 from this year’s figures. In roughly half of the country’s major cities, too? The monthly payments on a starter house are less expensive than the typical rent.
This rise in rent expenses is primarily due to the hot property market. With soaring property prices and a scarcity of for-sale listings, many purchasers are opting out. This puts a strain on the rental market and raises rents.
“Fewer properties posted for sale and considerably higher prices have kept many would-be purchasers in their rental apartments, stressing the rental supply,” says Lisa Harris of RE/MAX Center in Braselton, Georgia.
The pandemic is also a factor. Eviction prohibitions have kept many non-paying tenants in place for the last year, tying up properties. Even though the CDC’s eviction moratorium was overturned late last month, the experience has left many landlords wary.
“Not only have the fees gone up, but the need for tenant screening seems to be increasing significantly,” Harris notes. “Landlords are looking for renters with better credit scores, larger deposits, no pets, and a clean criminal record, among other things.”
Rent hikes have a trickle-down effect.
Alex Lashner, like the Mahons, has direct experience with the challenging rental market. She had to broaden her rental search to accommodate price hikes, and she’s now searching as far as 90 minutes from her business to keep inside her budget.
“I’m hoping it’ll be a temporary sacrifice so I can purchase something closer to my office in a few years,” she adds.
Lashner had hoped to purchase her first house in Bucks County, Pennsylvania. Still, she was unable to do so owing to the competitive nature of the market — and her reluctance to waive stipulations or overpay (as many purchasers have been compelled to do recently). She eventually decided to rent, only to discover that the rent was also increasing.
“When you compare the monthly expenditures, property taxes, and HOA fees with the rental prices for a two-bedroom or even a one-bedroom apartment,” Lashner adds, “I’m angry that purchasing a three-bedroom house in my budget is cheaper than renting.” “That’s where I’m experiencing the most sticker shock.”
On the other hand, rising rents are putting more than simply financial pressure on would-be purchasers. They also make it more challenging to save, perhaps pushing back your home-buying plans even more. The Mahons are one of the families in that camp, which Kristina describes as “frustrating.”
“Rather than paying down our mortgage and developing equity, we’re paying someone else’s,” she explains. “We won’t be able to save as much as we had intended for the following year or as long as we are renting.”
Buyers obligated to sign long-term leases have a different problem: what if mortgage rates rise?
For months, interest rates have been hanging at record lows, which has helped to bolster buyer demand. According to Kristi Nowrouzi, many purchasers who have lately pulled out of the market are anxious that circumstances may change.
“There’s apprehension about losing out on the low-interest environment,” Nowrouzi adds. “Inflation is on the rise, and who knows what rates will be like after a year leasing term next year.”
So, what’s the answer?
A month-to-month lease is one option for purchasers facing sky-high rents. The added freedom typically comes with a higher monthly rent, but it assures that you can act swiftly if the appropriate property comes on the market.
“They may be ready to take action by completing a month-to-month lease, even if rent may be somewhat more than signing a long-term lease,” says Shmuel Shayowitz. “They may also keep actively looking for properties and be better positioned to act even if prices don’t decrease.”
Fortunately, such tactics may not be required soon. Housing availability increases, especially in the starter house market. Existing-home sales have slowed, and price growth halted. According to Realtor.com, price reductions were made on 17% of listings in August.
“The market is certainly turning now,” Nowrouzi adds, “and prices are reducing a little, and sellers aren’t receiving as high a price per square foot as they were a few months ago.”
Is it, however, a genuinely cooled-down market? That may be a long time from now. “Patience is a virtue,” Tuning says till then.