Buyers are feeling the push into the market due to high rents. Rents have been rising statewide as demand for renting has increased due to low home sale inventory, and high down payments. Average monthly rent for a 1000SF loft/condo in Downtown Los Angeles is $2,700, up 10% from a year ago.
According to a survey of 975 homebuyers conducted by Redfin in May, one in four homebuyers reported that it was the high cost of rent that motivated them to go hunting for a house—a substantial increase from the share reported last summer. First time buyers drove the increase, with more than 50 percent of them citing high rents as the reason they were looking to buy a home—more than double the 25 percent reported in August.
The change is attributable to first-time buyers. In the most recent survey, more than fifty percent said high rent led them to the market, compared to only 25 percent of first-timers in August.
The most common concern among homebuyers was still affordability, with one in four survey respondents naming that as the chief worry. One in five named competition as the most common concern when buying a home, an increase from one in 10 in November’s survey.
With mortgage interest rates at historically low levels, under 4 percent currently. if homebuyers can get past the down payment obstacle, now is the time to buy, as the cost of borrowing is so low. In addition, renters do not have the advantage of mortgage refinancing to lower monthly payments.
In many cities, monthly rent is actually higher than monthly mortgage. While home prices are still below their pre-recession peaks in many areas, rents have been steadily increasing for the past decade. And income is growing at a much slower pace than rent growth. Zillow reported that consumers are spending an average of twice as much of their monthly income on rents compared with the percentage of income they are spending on mortgage payments-which makes it difficult to save for a down payment. If you managed to come up with the down payment, it makes financial sense to invest in your home.
These results are given with the caveat that the buyer must have on hand the required down-payment, and are driven by the large increases in both rental prices and home prices across the state.
|California Monthly Expenses||Buy||Rent|
|Insurance & Taxes||$509||$20|
|Improvements & Repairs||$198||$0|
|Mortgage int & Tax Deduction Savings||-$509||$0|
Again, over the 7 year horizon buying make sense financially in many counties, as referenced on the “Buy Vs Rent” chart.
Along with incorporating price levels, the analysis includes tax deduction benefits as many of the costs associated with homeownership general upkeep, inflation, insurance, mortgage rates; as well as the opportunity cost of not investing in the market, and general price levels. On the rental side, it annualizes average rent and rent increases for the county.
If you would like more personalized recommendations given your own income, and local situation with regards to purchase and rental prices. Click Here to use our assumptions on markets and prices to guide you.