Consumers Benefit from a Renter's Market
More and more consumers are recognizing that at least for right now they are better of financially renting than buying. This is certainly a departure from the past when most consumers realized that the best financial option would be to buy rather than rent so that their money would go toward creating equity in a home.
Today that is no longer the case, however. While rents have continued to rise in many locations, consumers are still finding they are often able to rent for less money than what they would pay for a monthly mortgage payment on a comparable property. In some cases, renters are able to save between 40% and 50% by renting instead of buying.
Steep increases in property values is one of the reasons for this phenonomen in some areas. Today, buyers who were quick to pull the trigger a few years ago are finding themselved with a need to sell. The problem? They are 'underwater' and they need to sell at property prices from two years ago. These people are finding that renters are not willing to pay more money than a home is worth. In short the frenzy is gone.
Even renters who are able to qualify for mortgages just do not feel as though they are getting enough home for their money, especially when they can often rent a comparable or even larger home for less money.
As a result of the shifting market, many experts are quick to point out that today the market is no longer a seller's market and it is not really a buyer's market either. Instead, it has become more of a renter's market.
Other renters are holding off on the idea of buying because they are concerned that prices have not yet hit the lowest point. They are primarily concerned that if they purchase a home today it may not be worth the same amount just six months from now. They feel it is far more prudent to wait and see exactly where the housing market will land before they consider buying a home. Other renters are concerned about the upcoming hurricane season. Few have forgotten the hurricane season of just two years ago that devastated many areas. Homeowners in those areas, especially those without insurance, have yet to recover.
While some areas are experiencing a deficit in supply of rental properties, in other areas homeowners have recognized the wisdom of holding off on selling their homes. They, too, are reluctant to sell their homes now when it seems more prudent to wait and see when the market will stabilize. To help make ends meet, many of these homeowners are willing to rent out their homes to the scores of renters lining up to take advantage of the opportunity. Even homes that are on the market for sale are also available for rent. While renters must accept the reality that the home in which they are living must be available for showings, they still feel the trade-off is quite worth it.
Would-be investors who attempted to get in on the quick profit potential of flipping homes have also discovered that it makes more sense to rent out their properties right now instead of trying to selling them. In some cases, investors are discovering they simply do not have any other options when they must meet mortgage payments every month and are unable to sell their properties. In some cases, this means renting the properties at a loss, creating a negative cash flow.
The situation has become so much of a problem that landlords in some focused markets are having to slash their rents in order generate a small amount of cash flow. These investors are discovering it is far better to rent right away at a loss than to wait several months to find a renter willing to pay the amount they need. Even these upside down landlords are finding that renting them is the safest and least expensive option, at least for now.
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Published July 16th, 2008
Filed in Real Estate