If you've looked for a nice apartment or home to rent, you've probably noticed that the monthly cost of renting has risen substantially over the past few years. Even with low interest rates, borrowers are having a tough time qualifying for mortgages.
If you've looked for a nice apartment or home to rent, you've probably noticed that the monthly cost of renting has risen substantially over the past few years.
Even with low interest rates, borrowers are having a tough time qualifying for mortgages. Despite what you see and hear from lenders, underwriting decisions are still being made on very stringent criteria that many do not meet.
A second reason, however, is that of uncertainty –– uncertainty with respect to the pricing stability of owning versus renting, and uncertainty about job security. Too many prospective buyers are still reeling from prior real estate losses or are familiar with such losses endured by a friend or relative.
If you are a landlord, this is probably good news. Pricing power should remain in your hands for at least a few more years. And like all real estate, the more in demand your location is, the less pressure you'll receive regarding pricing.
I would also expect to see news of rising real estate values. Low rates are still an attractant, but more significant may be the declines in inventory. Inventories are down because buyers have, indeed, emerged in some of the hardest-hit areas, believing that they are buying at rock-bottom prices. Banks are slowly selling off their portfolios of
real estate owned through the foreclosure process, and they are acting more swiftly to foreclose on loans in default, further reducing the inventory of available homes.
Does this mean that now is the time for some of the uncertain renters to change their stripes and begin to buy? Maybe. But that “maybe” is going to have to address all of their fears about employment stability and property values.
They must mentally commit to being in a specific location for a long time. They would also want to have a cash safety net to ride through any extended period of unemployment.
While we are seeing some price appreciation in certain locations at this very moment, a lot of it is neighborhood-specific based on demographics, supply and demand. For prices to rise across the board, inventory will have to drop substantially, and that may take a few more years.
John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at firstname.lastname@example.org or on Facebook as JohnPNapolitano.