Home prices in major metropolitan areas in California and the Northeast have risen quickly, pricing potential homebuyers out of the market, The New York Times reported. With home prices increasing at a rapid pace, consumers are likely to consider renting. Rental properties have seen a surge in demand as consumers are now turning to renting rather than face the long-term financial burden of mortgage payments, residential maintenance costs and property taxes.
In California, home prices have increased 33 percent in San Francisco and 24 percent in Los Angeles since the beginning of 2011, according to a New York Times analysis. On the other side of the country, New York is also becoming less affordable for typical homebuyers.
A recent report by the Federal Reserve Bank of New York found attitudes about renting are changing, as younger consumers are becoming more comfortable with the idea of renting rather than buying. The survey revealed the biggest reasons why consumers are choosing to rent rather than buy are because they either do not have the savings to purchase a home or have too much debt. Along with not having a good credit score, these combined factors could reduce the ability of younger consumers to be approved for a mortgage.
As it also often takes longer for consumers to be approved for a mortgage due to their ability to save a down payment and finance a home mortgage, consumers are finding renting is a more cost-effective alternative to buying a home, The Wall Street Journal reported.
Consumers going to low-rent areas
With rising home prices in some of the largest metropolitan areas in the country, consumers are also considering making the move to markets with lower rental prices.
“A lot of these coastal markets look overvalued compared to rents,” said Mark Zandi, chief economist at Moody’s Analytics, according to The New York Times. “In these markets, it seems generally more attractive to rent than to buy, even as the national market is broadly well balanced.” And while renting is often more attractive in these coastal markets, it doesn’t mean it’s necessarily affordable for the average renter.
Consumers are choosing to rent in regions where the costs of renting are low and the supply of rental homes – from single-family to multifamily properties – is growing, including Houston. In Houston, single-family rentals increased 8.8 percent in August compared to the same period last year, according to the Houston Association of Realtors (HAR).
Houston is seeing its population rise thanks to the influx of new residents relocating to the area, the Houston Chronicle reported. These former residents are moving from high-priced markets like California, with the state ranking as the No. 2 state where people are now moving to Texas. According to the U.S. Census Bureau’s American Community Survey, of the more than 73,000 residents who moved to Houston, 14,221 residents were originally from California.
More housing demand from people moving to Houston could mean more investment opportunities.
Single-family rentals are often a popular choice for investors as families lacking the funds to purchase a home tend to want to rent a greater amount of space with enough bedrooms to accommodate their children and other members of the household.
Houston realtors are forecasting the housing market will continue to see solid gains in demand thanks to job growth in the area. With more demand in housing, investors can consider whether they should expand their real estate portfolio with Houston investment properties.
While the dream of owning a home is still on the list for many Americans, renting is the next logical step if they want to save for a home, and it gives them time to get their finances in order before looking to qualify for a mortgage.