Realtors® have been reporting rising rents on a year-over-year basis. In recent years total housing production (single family, multifamily, manufactured housing) has been running in the neighborhood of 600,000 units, while the demand for new space due to housing formations, obsolescence of the existing housing stock, and second homes has been in the neighborhood of 1.35 million units. We are continuing to run a housing deficit.

Currently the housing markets are perceived as slow—both in terms of price and sales. However, unmet demand for new units is building on an ongoing basis, so it appears that there continues to be the potential for rent increases, and some of this increased demand should eat into the foreclosure and shadow inventories in future years.

If you’re renting in Casa Grande, Mesa, Tempe, Chandler, Gilbert  you really should start thinking about buying a home.

Rent or Buy?

The Housing market, it’s up, it’s down, no it’s going sideways, wait it’s crashing.  As a Realtor I love this news. Why? I’m strictly a Buyer-Broker Agent meaning I only represent buyers, never the seller. The worst the media-news hype will also keep home prices down.  Yes the economy’s doing bad, for about 20% of the population and will continue like this until at lease 2017 or longer.  However  we have 80% of the population working and moving along, buying auto’s, homes, going on vacations.  This article below was written for you if you’re part of the 80% of the population. If you’re considering buying a home in Casa Grande, Mesa, Gilbert, Chandler, Tempe, this article is for you.

The cliché says that there has never been a better time to buy.  The hard data in the housing affordability index confirms that.  The affordability index, which takes into account median income, median home price, and mortgage rates, has been bouncing around in the 180 to 200 range since the beginning of this year – the highest reading since the index was first used in 1971.

Yet, you still encounter consumers hesitant about taking advantage of possibly the greatest home buying opportunity of a lifetime. Should they buy now or not?

Let’s consider the situation in which a family earns $60,000, which is about the national average.  They are renting at $1000 per month.  They are considering buying a home that requires them to take out a mortgage of $170,000, which would be fairly close to the current national median home price.

At the current rate of 4.8 percent on a 30-year fixed rate mortgage, the monthly mortgage payment would be …(drum roll) … $891 per month.  That’s not all.  A measurable portion of the monthly mortgage payment is actually goes towards principal reduction on the loan balance.  For example, in the first year about $215 of the mortgage is for the principal payment, which in essence is a forced-disciplined savings imposed on the home buyer.  The remainder $676 ($891 minus $215) is the pure interest payment to the bank.  So the $676 monthly mortgage interest payment looks a lot sweeter than the $1000 in rent that was being shoveled out the door.  With each passing year, the principal portion gets larger while the interest portion declines because of a steadily falling loan balance.

That’s still not all.  A fixed rate mortgage means the monthly payment is fixed and will not rise for the term of the mortgage.  In this example, a person theoretically could be paying $891 in mortgage in the year 2041.  What would be the cost of living at that time? Food price? Gasoline price?  Also rent?

If rent was to rise by 3 percent a year, starting with the base $1000, the monthly rent will be $1344 in 10 years, $1806 in 20 years, and $2427 in 30 years.  If rent was to rise by 5 percent, then it goes to $1628 in 10 years, $2526 in 20 years, and $4321 in 30 years.  If monetary policy were to get of control, with too much money printing and inflation rose by 10 percent per year, then the rent becomes $2593 in 10 years, $6727 in 20 years, and $17,444 per month in 30 years.  Many economists are expecting 3% to 5% annual rent growth over the next two years based on recent falling trends in apartment vacancy rates.

When rents rise, there is also a tendency for home prices to rise.  Fundamentally, rent and home price would rise roughly in lock step – provided that home values do not contain bubbles and are back in line with their historical relationship to rents.  The chart below shows the rent (based on rental rent component of the consumer price index) and NAR median home price trend with the index set at 100 in 1980.  Well, today, home price and rent ratio are pretty much back to historically justifiable levels.  So it is reasonable to presume that any rent increase will also at some point lead to equal gains in home values.

If home values were to rise 5 percent (under rent growth assumption of the same) then the home value would rise to $178,500, translating into a gain of $8,500 in housing equity in the first year.  Subsequent cumulative gains over several years would be sizable, if the yearly 5 percent increases could be sustained.  Nationally the annual average home price increases have been at around 4 to 6 percent each year.  Even if by some strange event home value was not to increase one cent over  the next 30 years, the home would be owned free-and-clear by the 30^th year.  (Or much sooner if the family makes additional principal payments)

One always has to mindful that all real estate is local.  One cannot simply pick up a home from Detroit and plop it down in San Francisco to get a fast price appreciation. Therefore local conditions, figures, rent growth projections, and analysis will significantly vary.

Moreover, homeownership cost entails not only mortgage, but the additional costs in terms of property taxes, insurance, and money needed for maintenance and remodeling, though there are cost savings such as the mortgage interest deduction and property tax deduction for tax purposes that were not considered.

What is most important from my perspective is whether the family likes the home they are about to purchase and whether the family is willing to stay well within their budget.  If these two criteria are met, then now may indeed be a good time to consider buying.

RISMEDIA, August 11, 2011

Rental Vacancy Rate at 6-Year Low. Rents Will Continue To Climb!

Lost in the recent slew of negative homeownership announcements was a piece of good news for landlords and investors who are not sitting on the sidelines.

With low interest rates, homes price at the lowest levels last seen 10-12 years ago, first-time home-buyers scared off from the home buying market by media-hype, investors are jumping on the down market, buying up the deals and raising rents.

Rental vacancy rates are at their lowest since 2003 and still falling, which will drive up rents even faster than the 2-3 percent average annual increase predicted earlier this year. Moreover, with demand outpacing supply, the rent-to-buy equation is turning increasingly favorable in markets across the nation.

If  you’re living in the Metro-Phoenix East Valley your already experiencing the  shortage of availability, tighter credit guidelines and rent increases in the apartment communities along with private owners following suite.  In Casa Grande, were homes were renting for $850 18 months ago, landlords are now asking $1200 to $1300.

The Census Bureau reported that vacancies for rental housing were only 9.2 percent, 1.4 points lower than a year ago and .5 percent below the first quarter. We haven’t seen a 9.2 percent vacancy rate since 2003. The median asking rent for vacant units was %684.

Meanwhile, multifamily is the only busy part of the building business. The National Association of Home Builders (NAHB) Multifamily Production Index (MPI)—which provides a composite measure of low-rent, market-rate and “for sale” unit construction—inched up to 41.7 in the first quarter, from 40.8 in the fourth quarter of 2010.

The reading of 41.7 was the MVI’s highest level since 2006. The index is based on whether more multifamily developers and property owners believe conditions are improving or that they have grown worse since the last quarter, with 50 being the break-even point. The highest MVI in the last seven years was recorded in 2005, when the index reached 57.

With mortgage rates  falling, median home prices below last year’s levels in most markets and rents taking off towards 4-6 percent, homeownership will make renting look unbeatable in markets where renting was always considered less expensive.

Mortgage Rates Reach All-Time Low In Casa Grande

Ongoing economic concerns continued to push mortgage rates to new lows, as 30-year and 15-year mortgage rates took another dip, pushing home affordability even higher, Freddie Mac reports in its weekly mortgage market survey.

30-year fixed-rate mortgages: averaged 4.15 percent this week, dropping from last week’s 4.32 percent average. The previous record low for 30-year rates was set on Nov. 11, 2010, when rates reached 4.17 percent. For comparison sake, in 2000, 30-year mortgage rates averaged more than 8 percent and just five years ago they averaged 6.5 percent.

15-year fixed-rate mortgages: averaged 3.36 percent, dropping from last week’s 3.50 percent. Last year at this time, the 15-year fixed rate averaged 3.90 percent.

5-year adjustable-rate mortgages: averaged 3.08 percent, dropping from last week’s 3.13 percent. Last year at this time, the 5-year ARM averaged 3.56 percent.

1-year ARM: averaged 2.86 percent this week, dropping from last week’s 2.89 percent. A year ago, the 1-year ARM averaged 3.53 percent.

“Not surprising, many home owners took advantage of this low mortgage rate environment and have already refinanced their loans,” says Frank Nothaft, chief economist of Freddie Mac. “The refinance share of applications averaged nearly 70 percent of all mortgage activity in the first half of this year, according to our survey. In addition, an increasing share of refinancing borrowers chose to shorten their loan terms during the second quarter.”

From Daily Real Estate News | Thursday, August 04, 2011

High inventories of homes for sale have plagued many markets, but in a recent analysis of metro areas, inventories were found to be shrinking sharply during the second quarter, The Wall Street Journal reports.

About 2.34 million homes were listed for sale on the multiple-listing service by the end of June, the lowest level for that time of year since at least 2007, according to Realtor.com. What’s more, some inventory levels even reached their lowest levels since the housing crisis began five years ago, which has prompted some markets to even say their facing a shortage of homes on the market.

While a drop in inventories can often signal more demand — and ultimately a boost to home prices — some analysts are not so sure this signals a complete turnaround for the real estate market quite yet.

“While sales are picking up in some cities, analysts say the sharp decline in inventory also reflects the slow pace at which banks are processing foreclosures,” The Wall Street Journal reports. (The number of homes in foreclosure — a backlog of 2.1 million — is near a high.) In addition, some sellers are taking their homes off the market due to low offers and waiting until they put it back on the market.

In its analysis, The Wall Street Journal found that of the 28 major metro areas evaluated inventory levels had dropped in all 28 — except for three. What’s more, they found that inventories had dropped by double digits in 16 of those markets during the second quarter when compared to a year ago.

The graph below shows a reduction in inventory for zip 85122, however if you notice pending and sold homes have remain consent. With inventory coming down and sales remaining steady, the only conclusion is that prices of homes will start to climb.  Supply and demand dictates price.

The graph below for zip code 85122 shows the monthly absorption rate or the amount of homes for sale in monthly inventory as less than 4 months compare to the same time last year of  8 months supply, that’s more than 100% drop in available homes for sale.  While you’re sitting on the sidelines waiting for the market to drop out, buyers aren’t.

Why 87% off all homeowners know owning a home is a better investment than renting.

Home-ownership never was a question until the last couple of years with all the news of the late-2000s financial crisis (often called the Credit Crunch) or housing bubble. Roughly speaking, there are 74.5 million homeowners in the United States. Approximately 44.7 million have some type of mortgage and around 34.4 million are current and have equity in their homes, in addition, 30 million own their homes free and clear. 64.4 million homeowners cannot be wrong! Check out Rent Increases Make Home Ownership A Good Investment.

If you are considering buying or investing in foreclosures or just started shopping for foreclosed homes, bank owned or HUD homes you will need a Realtor with a lock-box key.  Use an exclusive buyer agent (EBA),  an agent or broker who represents only buyers of real estate. EBA firms never take listings and, therefore, never represent the seller in a real estate transaction.