Apartment rentals are increasing at their quickest rate in two decades, according to two new data reports, but potential homebuyers are finding it more difficult to save for a down payment.
The Issue for Tenants: According to recent data from RealPage Inc., effective asking rents increased by 2% in June. As a result, rent rates jumped by 6.3 percent year over year, the largest 12-month increase since early 2001.
In June, the average monthly rent in the United States was $1,513, the first time it surpassed the $1,500 threshold.
“Annual rise in effective asking rents exceeds 10% in 53 of the country’s 150 largest metros, including 13 places where year-over-year price hikes exceed 15%,” said Greg Willett, Chief Economist at RealPage. “In the 150-metro group of markets, the relatively modest Boise, Idaho, has the most aggressive yearly rent growth, with pricing up 21.2 percent.”
Willett went on to say that among metro regions with at least 100,000 apartment units, Phoenix had the highest annual rent increases, at 19.2 percent, followed by Las Vegas rates, which increased by 16.7 percent.
Due to a shortage of new building, smaller metro areas had the highest levels of apartment occupancy.
Associated Link: Home Partners Of America is acquired by Blackstone Real Estate Income Trust.
The Issue Facing First-Time Home Buyers: Separately, fresh research from Zillow Group Inc (NASDAQ: Z) (NASDAQ: ZG) indicated that saving for a down payment to move into homeownership is becoming more difficult for many renters.
According to Zillow, if a typical renter household saves 10% of their salary, it will take around six years and five months to earn enough money for a 20% down payment on a typical starter home priced around $148,500, which is one year longer than it would have taken five years ago.
However, this is contingent on being able to find a cheap property.
In 42 of the 50 largest metro areas, Zillow found that homes in the bottom third of a metro area’s housing supply — the range generally designated for starter homes aimed at first-time buyers — rose faster in May than the typical mid-market home. Those who are just getting started saving may need to account for the significant rise in home values.
Furthermore, Zillow predicted a 14.9 percent increase in value over the next year, adding $369 per month to the down payment savings process.
“First-time homebuyers have more problems in coming up with a down payment without the equity from a previous home sale,” says Zillow economic data researcher Nicole Bachaud. “The ever-increasing sum of a 20% down payment can feel out of reach in a housing market where prices are soaring at historic rates, especially when contrasted to renter salaries.”
Bachaud, on the other hand, made a point “Most traditional mortgages offer as little as a 3% to 5% down payment, allowing buyers to take advantage of today’s low mortgage rates without putting down the entire 20%. Higher monthly payments accompany the smaller initial outlay, but for many, the potential to grow equity outweighs the additional expenditures.”
(Photo courtesy of Jhonatan Perez / Pixabay.)
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