Since 2005, homeowners’ expenditures for housing have risen from 31.9% of their household budget to 33.2 %, but renters’ costs have risen even more, from 35.6% to 38.4%, according to the October CoreLogic U.S. Housing and Mortgage Trends.
Since 1985, homeowners have increased their housing expenditure allocation by 12%, while renters increased by 22%.
As consumers allocate more of their expenditures toward housing, they have less money to spend on non-housing consumption. The largest decline in a household’s budget occurred in transportation expenditures which fell by 17% and 22% since 1985 for homeowners and renters, respectively.The increased spending allocation for housing, which is largely due to the stagnation of incomes among Americans of home buying age beginning in the 1990s, has actually contributed to the decrease in homeownership by making buying a home more difficult.
Demographics have also contributed to the decline in homeownership.
For the 25 to 34 age group, the homeownership rate fell from 51.6% in 1980 to 42.0% in 2010. For 35 to 44 yr. olds, homeownership rates fell from 71.2% to 62.3% over the same time period.
The CoreLogic report also found that a significant number of foreclosures are remaining on the market for as long as four years or more. One out of five REO foreclosures (21%) are taking more than a year to sell. Nearly 10%, or 23,200 properties that were auctioned in 2006, remained in REO as of Q2 2010. In other words, these properties have been in REO continuously since 2006.
January Zillow Real Estate Market Reports nationwide 70% of markets see increase in rents, while just 7% report home value increases. Median rents rose 3 % from January 2011 to January 2012, but home values continued to fall, declining 4.6 % during that same period.
While it seems that rents are rising at the expense of home values, the opposite is true. A thriving rental market will stimulate home sales as investors snap up low-priced inventory to convert to rentals. That, in turn, will lower the number of homes on the market, which will eventually help put a floor under the value of all homes.
Moreover, rising rents increase demand as buying becomes more attractive than renting because of low purchase prices and higher rents.
So how do you decide whether you should rent or buy? There are handy tools online, just Google “rent vs. buy Monterey Peninsula” and there is a survey you fill out with pertinent questions regarding your own personal situation. It will calculate your answers and come up with a recommendation of whether you are in a position to buy or whether you should be renting.
Occasionally with houses on the market a long time there may be a ‘lease option to buy’ option however in a declining market you need to be careful that you don’t lock yourself in to a price which might be valued less in 2 or so years when your option is up. Always have a Realtor® help you with this as they can guide you with market analytics in that area.
© Patty Ross, KRXA Radio Show # 227 (originally aired April 6, 2012)
