"Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That's yet another reason owning often does--as Americans intuit--end up making more financial sense than renting."
"With a 30-year fixed rate mortgage, you'll have the certainty & stability of knowing what your mortgage payment will be for the next 30 years - unlike rents which will continue to rise over the next three decades."
For renters who aspire to be home owners, transitioning from an apartment to a house requires a shift in their thinking that they may not be prepared to make. The financial changes that come with owning, the need to consider planting longer-term roots in a neighborhood, and new neighborhood rules are things renters may not be thinking about enough.
Read more: Where Buying Beats Out Renting the Most
As their real estate agent, it’s important for you to be there for your clients when they’re embarking on a life-changing event such as buying a home.
Moving can already be one of the most stressful times in a person’s life, but it may be doubly so for a new home owner. In order to be their most reliable resource, using your knowledge and experience to provide them with guidance, share these helpful nuggets of information with your clients so their transition from renter to owner can be as smooth as possible.
They need to understand how their financial investment is changing. Renters may see an increase in their monthly rent every lease term, but they don’t see exactly where it goes — toward property taxes and insurance, even “luxuries” such as trash pickup. As home owners, they don’t have a landlord who handles all those details, so they need to be ready to juggle the financial responsibilities of home ownership. Have an open conversation with your clients about these changes and the importance of budgeting to make sure they make smart financial decisions during this process.
They need to be happy with their location for the long-term. As a renter, you can bounce around from home to home every year if you want. But when you own a home, you have to stay put — unless you plan on renting it out, which most home owners don’t. Impress upon your client that location is going to play a much more significant role in their future, so they should think about evaluating school districts, access to amenities, and commute time now as they search for their next home.
They may need to abide by new rules. Renters don’t think about possible homeowner association rules they may be governed by, such as trash pickup rules or any curfews or rules pertaining to animals. Make sure to get all the information on neighborhood rules and associations to help your client understand what their new obligations will be.
They’ll need to get into the mindset of an owner. Life as your client knows it is about to change. Once your client purchases a new home, they will no longer have a landlord to tend to their many needs, including lawn care and plumbing. The best way you can help them as their real estate agent is to provide them with contact information for local industry experts. They will eventually need certified specialists ranging from HVAC companies to carpenters to electricians. Let them know they don’t have to do everything themselves.
They should know their neighbors can affect their value. Renters don’t care who their neighbors are as long as they’re quiet (enough). But your client is now going to want to know whether their new neighbors are renters or home owners. This knowledge can help your clients gauge current and future home value in the neighborhood. If the neighborhood consists mostly of rental properties, it is likely a home owner will lose money on their house in the future. Renters do not always feel responsible for maintaining their properties the way home owners do. Property value comes down to curb appeal. Less-appealing neighborhoods often have more-appealing prices, which is not always good for buyers and home owners
No matter what shape or size your living space is, the concept and feeling of home can mean different things to different people. Whether it’s a certain scent or a favorite chair, the emotional reasons why we choose to buy our own home are, more often than not, the more powerful or compelling ones.
Every year, The Joint Center for Housing Studies at Harvard University conducts a survey to find driving factors behind why Americans decide to buy a home.
The top 4 reasons to own a home cited by participants of the survey were not financial.
From the best neighborhoods to the best school districts, even those without children at the time of purchase may have this in the back of their mind as a major reason for choosing the location of the home that they purchase.
It is no surprise that having a place to call home with the means for comfort and security is the number two reason.
Whether your family is expanding, or an older family member is moving in, having a home that fits your needs is a close third on the list.
Looking to actually try one of those complicated wall treatments that you saw on Pinterest? Tired of paying an additional pet deposit for your apartment building, or do you want to finally adopt that puppy or kitten you’ve seen online 100 times? Who’s to say that you can’t in your own home?
The 5th reason on the list, is the #1 financial reason to buy a home as seen by respondents:
Either way you are paying a mortgage. Why not lock in your housing expense now with an investment that will build equity that you can borrow against in the future?
Whether you are a first time homebuyer or a move-up buyer who wants to start a new chapter in your life, now is a great time to reflect on the intangible factors that make a house a home.
Two facts stand out in today’s housing market: rising home sales and flat/falling inventory.
Existing home sales are up 5% year over year in the first half of 2016, and in June reached a seasonally adjusted annual rate of 5.57 million units?the highest level since early 2007. But housing inventory, as measured by the number of existing homes for sale, was down by 130,000 units year over year in June.
This is a continuation of what has been happening since 2012. Between 2012 and 2015, home sales have increased by almost 600,000 units, from 4.67 million units to 5.25 million units, while housing inventory has been flat or down.
Figure 1. Existing home sales and housing inventory (Click to enlarge)
Source: National Association of Realtors
Why is missing inventory a puzzle?
Housing is a two-sided market. Most homebuyers are already homeowners and they typically sell their existing home before buying another one.
That is why the flat-to-down housing inventory is so puzzling in the presence of rising home sales. If people are buying more homes, why aren’t there more homes for sale?
I believe this phenomenon tells us something about what is happening to homebuyers who are more pivotal to housing demand.
First-time homebuyers, people buying second homes, and investors stand out because they do not have to sell before buying. When these buyers enter the market, they add to sales without also bringing inventory to the market. So rising home sales and flat-to-down inventory trends are consistent with more first-time homebuyers entering the housing market.
The missing inventory quantified
One way to understand the missing inventory is by comparing actual inventory level with the level of inventory holding constant the months of supply.
For example, actual housing inventory in 2015 was around 180,000 units less than the level of inventory if months of supply had stayed at the 2014 level. If more first-time homebuyers in the housing market explains the missing inventory phenomenon, it would have to have a similar size.
Figure 2. 2015 housing inventory – actual vs. implied (Click to enlarge)
Source: National Association of Realtors, Genworth Financial
The link with the first-time homebuyers market
The best source of information on first-time homebuyers is the mortgage insurance industry and the FHA. Both serve a large number of first-time homebuyers by lowering the down-payment hurdle.
I estimate that the industry helped around 1 million new first-time homebuyers in 2015. More importantly, our data shows that the number of first-time homebuyers increased by around 200,000 from the previous year.
This is evidence that the growing presence of first-time homebuyers was a major factor in reducing housing inventory while pushing up home sales last year. Anecdotally, I hear many stories about the lower end of the housing market being tighter. That is also consistent with more first-time homebuyers entering the market.
Data for the first half of the year suggests that we will see continued pressure from first-time homebuyers entering the housing market. Based on my estimate, the number of first-time homebuyers served by the mortgage insurance industry and the FHA combined are up by another 100,000 in the first half of 2016.
What does this mean for the housing market?
I expect rising first-time homebuyers to be a major trend in the housing market over the next few years, generating higher home sales while keeping housing inventory down or flat. The result is a tilt in favor of home sellers and a continuation of rising home prices.
"With demand holding firm and homes selling even faster than a year ago, the notable increase in closings in recent months took a dent out of what was available for sale. Realtors are acknowledging, with increasing frequency lately, that buyers continue to be frustrated by the tense competition and lack of affordable homes for sale in their market."