Rising home prices have also led to rising rents. It is becoming more and more expensive to rent for people who cannot afford to buy a home.
Data from Apartments.com shows that average rental rates are up 7.5% year over year, three times the normal rate of growth. It is even worse in the popular Sunbelt housing markets, which saw a dramatic influx of new residents during the pandemic.
The Washington Post cited the case of Phoenix residents who were told their rent would increase by $ 400 a month, a 33% increase. Housing experts say this is in part because markets like Phoenix are growing in popularity. This is also because many young people who left the cities at the beginning of the pandemic are returning.
“I think we’ll see an increase in the next 12 to 18 months,” Robert Pinnegar, president of the National Apartment Association, told the Post. “We have never had three generations in the rental housing sector, at least not in the number we see now.”
Single-family houses show the strongest growth
The cost of renting a single family home is leading the increase as there is less inventory than apartments. In a report on the April 2021 data, CoreLogic found a national rent increase of 5.3% compared to the previous year, compared to an increase of 2.4% compared to the previous year in April 2020.
“Rental growth in single-family homes showed a strong rebound in April 2021, with all price ranges back above their pre-pandemic rental growth rate,” said Molly Boesel, chief economist at CoreLogic. “While rental growth slowed last April at the start of the pandemic, rental growth this April, even compared to 2019, was above pre-pandemic levels and shows no signs of decreasing.”
This puts tenants who want to buy a house in a difficult position. Property prices keep rising, which means they will need a larger down payment. But as rents go up, it becomes harder to save money and become a homeowner.
Down payments are a challenge
“Without the equity from a previous home sale, first-time home buyers face greater challenges in making a down payment,” said Zillow economic data analyst Nicole Bachaud. “In a housing market where prices are rising at a record high, especially when compared to rental income, the ever increasing sum of a 20 percent down payment can seem unattainable.”
The only bright spot in all of this is the cost of borrowing. Mortgage rates remain almost at record lows.
First-time buyers can avail of the Federal Housing Administration (FHA) FHA loans, which allow qualified applicants to deposit as little as 3%.
“That lower upfront payment comes with higher monthly payments, but the ability to build equity can outweigh those additional costs for many,” said Bachaud.
You can find more information on FHA loans here Here.