I started this post as a reply to another, but IMO it deserves it’s own thread.
We are in a time where the rent/buy calculators swing strongly to buying a home being your best option
That could quickly change when mortgage rates hit 5% and 6% next year! (they probably won’t though, because the fed will be forced to back off in 2 ways, first they will likely slow their interest rate increases, and second, they will have to start buying mortgage debt again).
Sorry to sound like a broken record, but the state of housing has much more to do with a skewed supply/demand curve and less to do with mortgage rates. Yes, this time it is different. Demand has been created for larger living areas with the potential for home offices given the WFH trend which is likely to stick, and the fear of having to go back into lock down should Covid escalate or another unknown virus present, as well as high participation by corporations in buying single family homes to put on the rental market. These corporate buyers pay cash, creating a home buying market where if you cannot pay cash you better offer well over asking on the home. https://www.redfin.com/news/investor-home-purchases-q4-2021/… Lots of very good data at this open to all article and I highly encourage you to read the article in full.
This corporate trend is not new. I noticed it after 2008 in Atlanta, when large blocks of foreclosed homes got snatched up by Blackstone and put on the rental market, which then gap up in rent price because the corporation controls so much of the inventory. Youngest is facing the problem in his new city as well, with the high high rents making it necessary for him to simply rent a room in a 3 bedroom townhouse for $1K/month. Just an ordinary townhouse, and in the burbs, about 20 minutes from the city with higher rent prices. The only way he will be able to buy a house is by using the Bank Of Mom and Dad, which will pay cash. I see the same affordable housing crisis here, even before rents gapped up 20+% this year. We also live in a small city where there are many places that rent by the bedroom, inventory controlled by investors.
IMO, it is local and Federal gov’t that needs to control this, in order to continue to provide affordable housing to the locals. Raising mortgage rates will only strengthen the hand of those who can pay cash, driving rents higher and prices higher. Currently our city is eliminating SFH zoning in favor of 3+ units, which will only make buying properties more interesting to investors and compound the problem, effectively forcing families from the city as housing units get smaller and more expensive on a per bedroom basis. One way to mitigate the growing affordability problem could be to change the tax rules for owner occupied vs rentals, or perhaps for more than X rentals, be that 1 or 4, or whatever. There are many landlord laws that only apply to those with more than 4 rental units. Locally, that could be a higher tax rate for rental properties than owner occupied. Property taxes have skyrocketed in our city, with escalating sales prices, causing long time owners, many elderly, to have to sell their home. Escalating assessments are kicking many who were previously in the real estate tax waiver program to lose the benefit simply because they stay in their home as it’s value escalates past the max home value for the program, while their income does not grow. Federally there could be take backs for over X rentals of many of the great tax breaks one gets on a rental property. There is a feeding frenzy from corporations because they see the purchase as a great deal. Tax law changes could mitigate those benefits for investors and even the playing field a bit.
Corporations will understandably continue their feeding frenzy until actions like these are taken.
These corporations disingenuously like to claim that they have bought only something like 2% of the home sales, but that is on a national basis, while the corporations focus on specific locations where potential to get high rent is supported by strong diverse economies and supply constraints. It is near impossible to extrapolate real estate data to reflect what is going on in a specific location. Not all averages are meaningful, with almost nothing about the national average numbers that people like to bandy about for real estate being meaningful to indicating what the real estate scene is like where you live.
Real estate is much more complicated than how high the mortgage rates are. Having a safe affordable place to live is increasingly threatened, and is IMO a large factor when it comes to uprisings of normally easy going people. This affordability crisis needs to be addressed by understanding the details of what is going on, and taking steps to mitigate it.