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Rent Growth & Home Ownership

‘It is concerning’: Rent growth has cooled but is still at record highs in many metros, keeping homeownership out of reach for would-be buyers

James Faris, Business Insider August 19, 2022

A 2008-style housing market crash is “definitely not” happening, said Molly Boesel of CoreLogic. However, the economist noted that record-high rent growth is having a negative affect. Here’s how hopeful homebuyers can know which markets to avoid and what mortgage to choose.


One of the biggest fears of any hopeful homebuyer is paying up for their dream home, only for the bottom to fall out of the real estate market in a 2008-style crash. Fortunately, that’s not an issue that househunters need to worry about right now, said Molly Boesel, the principal economist at CoreLogic, in a recent interview with Insider. The US real estate market is cooling off as new home supplyincreases and borrowing costs in the form of mortgage rates rise, but Boesel said that the market’s fundamentals are solid. In fact, indicators like relatively low inventories and the number of days that homes are on the market show that the market is still hot, Boesel said, even if home prices climb at a slower rate.


Boesel’s base case is for double-digit home price growth for the remainder of this year and 6% in 2023, which aligns with fellow market observer Rick Sharga’s belief that it’s a mistake for hopeful homebuyers to bank on widespread declines. However, she can’t rule that scenario out. “There’s a clear chance of sales slowing down, maybe in the 10% range compared to last year,” Boesel told Insider. “But keep in mind, last year for home sales was the highest since just before the great recession. So we’re coming off a really high number of home sales.”


Boesel continued: “There’s definitely some slowing. We’ve already seen the slowing through midyear, but we’re not expecting home prices to fall.”


Still, the economist went as far as to say there’s “definitely not” going to be a market meltdown. Comparisons between the financial crisis and today’s market are flawed, in her view, because back then, there were high levels of negative equity that aren’t present in 2022. This sentiment is in line with comments from numerous real estate experts that Insider polled earlier this year. “It’s a completely different situation for borrowers,” Boesel told Insider. “They’re in a much better position.”


Rising rents are a serious concern


While a housing crash anytime soon is far-fetched, there’s still one big concern for homebuyers, in Boesel’s view: Just like home prices, rent growth continues to climb, albeit at a slower pace.


Rent growth for single-family properties in the US rose 13.9% year-over-year in May and remains at an all-time high, according to a CoreLogic report released last month.


While rent growth didn’t accelerate on a month-over-month basis for the first time since January 2021, the fact that rent and prices for other goods have stayed historically elevated is troubling, especially considering that inflation hurts lower- and middle-income households the most.


“Even though rent growth eased a bit, it’s still up there at near-record-highs in rent growth,” Boesel said. “So that is concerning for consumers. As they face higher rent, they also were trying to buy, they would face higher home prices and just, in general, high inflation all around. So it is concerning for consumers.”


Metro areas with the highest year-over-year rent growth in May, according to CoreLogic’s report, are as follows: Miami, Florida; Orlando, Florida; Las Vegas, Nevada; Phoenix, Arizona; San Diego, California; Atlanta, Georgia; Dallas, Texas; Austin, Texas; Boston, Massachusetts; and Tucson, Arizona.


One trick hopeful homebuyers can use

While househunters are getting squeezed by record rents while they wait to pay up for a property, it’s not all doom and gloom.


There’s a step that homebuyers can take to make getting a new home more affordable, Boesel said: choosing an adjustable-rate mortgage (ARM), which is a loan with a flexible interest rate.


Just 9.5% of homebuyers opted for an ARM in mid-July, according to the Mortgage Bankers Association, which is still a far higher rate than in recent years. Because an ARM’s rate can rise or fall, many people would rather have the certainty of a much simpler 15- or 30-year mortgage.

Mortgage Bankers Association

However, an ARM appears to be an attractive option right now, Boesel said, given its lower rate.

Freddie Mac

“A lot of first-time buyers might go for a 30-year mortgage rate, but ARM rates — adjustable-rate mortgages rates — are quite a bit lower than 30-year mortgage rates,” Boesel said. “So if a consumer felt comfortable with where their income would be at the time of a rate reset, they can look at an adjustable-rate mortgage payment loan.”



Article above was written by James Faris and published by Business Insider