We’ve seen a lot of information over the past few months that talk about how hard it’s becoming for the middle class to buy a home. As a result, renting a home is becoming a more attractive alternative to buying a home.
An article from the Huffington Post talks about the 4 main reasons this is happening:
1) Home prices are rising faster than wage increases
The simple math behind this trend is that homes are becoming less affordable for the middle class. The housing recovery is in full swing, but cost of living and merit raises are not keeping up. The options are to buy a smaller house or rent.
2) Lending standards have been tightened dramatically
The average FICO score for Fannie Mae loans that closed in 2007 was around 715. In 2013, the average FICO score was 753, a significant increase in the required credit worthiness of potential borrowers. In other words, you’ve got to have an excellent credit rating score to get a reasonably priced loan. For the people that have less than stellar credit scores, the options are to go with a higher priced FHA loan or rent.
3) Lower inventory of homes for sale
In 2006, the average supply of homes available was around 5 months. During the recession, the average got as high as 12 months of supply. (This meant nobody was selling their homes, usually because they were upside down on the value of their home versus what they owed on their home). In January of 2014, we are back to the average of 5 months of inventory. This means that there are fewer houses on the market to be bought.
4) Investors are grabbing all the homes they can
There is no question that this is happening in Kansas City. We are helping more institutional investors that want us to manage multiple houses for them. There are lots of investors out there that held onto their cash during the recession. As the recovery continues, and home prices and mortgage rates stay relatively low, investors are putting that cash to good use by buying real estate and renting the homes to generate passive income. This means competition for homes has gone up while the available inventory of homes as mentioned above has gone down.
These trends result in it being harder to buy a home. Renting a home continues to be a strong alternative for the middle class.