There is some good news stirring in the market, specifically for Central Florida real estate agents.
Annual rents are going up!
"Asking rents for apartments in metropolitan Orlando are expected to increase 2.9 percent this year to a midpoint of $863 a month", according to an annual forecast by Marcus & Millichap, the Orlando Sentinel reported earlier this month.
Eight days later, the Orlando Sentinel published an article with the headline: "Home prices rise as fewer listed for sale."
What does one have to do with the other?
Homeownership will grow in direct proportion to how renters start buying homes again. We all know that there is not now, nor will there ever be, a more effective home purchase incentive than rising rents.
Those who can buy, and want to buy, have been waiting for this moment. These are the renters who are qualified to purchase — the ones who never considered renting for the rest of their lives.
Increased rents help them refocus on their goal, and with house prices moving up ever so slightly, new-home communities and real estate agents will start seeing more first-time buyers in the market.
In my opinion, renters moving to escape escalating rents will be the market’s "first responders."
For those who think homeownership will not rebound as the lifestyle of choice, may I speak as one who has been through four recessions?
Homeownership will regain its footings as America’s housing preference — not because of the white picket fence, but because it represents the most stable financial defense against what portends to be consistent and substantial: the annual rent increase.
The question
If rents are increasing in your market and home prices are stabilizing and in some cases increasing, when do you think would be a good time for renters who would like to buy a home and can buy one? The answer: as soon as possible.
Let’s waive the unknowns such as taxes, insurance rates and incentives. Just to be on the conservative side, consider homeownership vs. renting from strictly a fixed-cost benefit.
Tomorrow’s renters will not know from one year to the next what their monthly payment will be, nor for that matter where they will be living.
Using the Orlando Sentinel’s annualized projection of $863 per month, a family renting in the same complex for leases that went up 2.9 percent a year would be paying $1,024 per month in their sixth year … and have no idea where the lease payment will be in the seventh year.
A homeowner with a 30-year fixed mortgage will know what his mortgage payment is going to be for years. Property tax increases could reflect higher valuations, which usually reflects an improved equity position.
The price of the house is not the point for purposes of our discussion. The monthly cash flow is the point, and it is one big reason why homeownership will continue flourish..
Question: With interest rates projected to increase, rents going up, and housing prices starting to stabilize, when do you think renters who are wanting to enter the home market should start buying?
What the naysayers tend to overlook is the variable dynamic in the housing market that generates its own demand. There is something in all of us that wants a good deal. One way to get one in the housing market is to buy before prices start moving up or mortgage interest rates go up again.
The other reason rising rents are good for local economies is that first-time homebuyers buy new homes, and there cannot be a sweeter signal that the economy is improving than hearing nails being pounded into rooftops of newly constructed homes.
This time around there is another market that is waiting like a hungry lion in tall grass to pounce back into homeownership.
Qualified renters — who feel stable in their new jobs and can afford to move out of the rental they were forced to move into — will be the first into the market.
They don’t have a short sale or foreclosure or a need to sell their home before they can buy one. Their impact will help stabilize the market, creating more demand. Then, prices will start edging up. Renters will tell their friends, "We are glad we bought when we did."
With the shortage of apartments caused by the rental conversion craze, and the predicted low supply of Sheetrock and other supplies on the horizon, increased housing prices will be on the horizon, too.
This will, in turn, force more people to rent, which will put more pressure on lease payments, which will force more renters into the homeownership market.
There is nothing complicated here. It is all about the cost of living and the pressure on individuals and families to find more financial stability.
So, the next time you read that rents in your market are rising, consider it good news for the real estate and homebuilding industries — then watch for the coming announcement that housing sales are stabilizing.
