Remember Jimmy McMillan, the New York gubernatorial candidate for the “Rent is Too Damn High Party”? With zest and enthusiasm, he was certainly an entertaining candidate and freely shared his political ideas and activities which he felt represented ordinary people's needs and wishes.
It appears that not only did he have a larger-than-life persona, he was a little clairvoyant as well; rent is indeed too damn high.
An unexpected boost to home sales just might be attributed to the rising cost of rent.
In an annual report released last week, Harvard’s Joint Center for Housing Studies found that nationwide, a renter paid approximately $881 a month to rent an apartment, while a typical homeowner only paid $625 a month.
At first blush, buying a home appears to put an additional $256 into the pocket of a borrower each month.
However, that report lacks some very pertinent mortgage data, including specifics on the payment as it relates to additional mandatory property owner expenses, including property taxes and insurance, whether escrowed or non-escrowed.
Consequently, the numbers could be skewed one way or another in the rent versus buy analysis.
Regardless of the questionable savings analysis, potential homebuyers may find owning a home to be a better option than renting since it comes with an opportunity for annual income tax deductions for mortgage interest and property taxes, provided these plus any other available deductions exceed the applicable standard deduction amount.
According to the online real estate company Trulia, buying a home is by far a better deal than renting in 98 of the top 100 housing markets.
The problem is acquiring financing. Lenders have tightened their underwriting standards and require near pristine credit scores before they will consider approving a mortgage to a potential homebuyer.
And financing with anything other than an FHA mortgage requires a hefty downpayment. As long as unemployment rates remain north of 8%, unemployment will continue to put a drag on the economy. This causes high anxiety and trepidation for people thinking of becoming a homebuyer.
Households as well as businesses are still very cautious about our economy and the consensus is not to expect any significant improvement any time soon.
We now find ourselves in a bit of a Catch-22, where rising rents can work against a household wishing to pursue the American dream of homeownership.
The biggest barrier to home buying is saving for a down payment and higher rents make saving even more of a challenge as households have less cash to tuck away at the end of each month.
Prior to the housing bust, rent increases kept pace with inflation but that trend has changed drastically.
The current trend of rent increases outpacing the inflation rate is a direct result of the significant demand for rentals. Analysts expect average rent increases to rise by 6% nationally for the next few years and as much as 10% in some metro areas.
The number of renters continues to increase due to a mildly strengthened economy, but not an economy strengthened enough to turn renters into homebuyers.
Construction of multifamily buildings did increase last year but construction has not been completed on many of those projects thus creating more rental demand than current supply can fulfill.
Until we return to a healthy job market, rent will continue to be too damn high and for many, the American dream of owning a home will be just a dream.
Cheryl Lang is president/CEO of Integrated Mortgage Solutions, Houston.