Owning a Home Becoming Cheaper Than Renting
Or, perhaps better said, being a landlord is becoming more profitable. A Deutsche Bank study recently released shows that renting a home costs US households more than paying a mortgage for the first time in at least two decades. The “rent-buy ratio” – that is, rent as a percentage of after-tax mortgage payments, is based on figures that Deutsche Bank complied from the National Association of Realtors (NAR) and the Real Estate Information Service (REIS). Rent amounted to 100.2% of home-loan costs in last year’s fourth quarter, the highest level since calculations began in 1991. For those of you hesitating to buy investment property, this might be your motivator.
As home loans get harder to obtain, the number of renters increases, and so will rent
Come October 2011, buyers’ purchasing power is will reduce even further:
• The FNMA (Fannie Mae) loan limit will be reduced from $729,000 to $625,500, pushing more buyers into jumbo loans for which there are fewer lenders and consolidators.
• Jumbo loans require 6-12 months of reserves, which is more than FNMA requires.
• Interest rates will likely rise, making qualifying for a loan even harder.
• Mortgage insurance for FHA loans will increase by 30% in April 2011.
• Credit scores are on the decline.
• As home equity has vanished, buyers who want bigger homes will not have the equity from the sale of their current home to put toward the new purchase, which will likely require a 30% down payment.
What does this means? More people staying in their homes, more people unable to qualify for a loan, more people renting instead of buying. This is all true before we get to the conversation of the recurring suggestions in Congress that the mortgage interest deduction should be reduced or eliminated. There are times when it’s good to be a landlord. This is one of them. And, yes, we do investment property loans, too. Give us a call.