By Erik Sherman
June 15, 2022
View source version HERE
John Burns says it comes down to dollars and sense, with too much needed for homeownership.
There’s been a lot of talk in and around CRE about the shifting desire of many to rent rather than own a home. Perhaps it makes some feel comfortable, but John Burns Real Estate Consulting points to numbers, not emotions.
“A little over a year ago, the monthly cost of owning (as we calculate it) and renting were virtually identical,” they wrote. “Now, owning a home costs $839 more per month than renting. This differential is almost $200 higher than at any time since the turn of the century.”
Both home prices and rents have both been on the uptick, but “the disparity between rising homeownership costs and rising rents has been greatest where home prices have accelerated the most.” In Raleigh-Durham, Denver, Tampa, Nashville, and Phoenix, the disparities are the largest.
But that only covers a range of estimated difference from 35% (Phoenix) to 42% (Raleigh-Durham). The group of 15 following ran from Chicago’s 23% to Jacksonville at 34%. The national average is 31%.
According to the firm, “home builders who were once reluctant to sell to rental home investors are now soliciting offers from investors” and those institutional investors will help keep housing prices up.
That gets a little more complicated considering what others in the industry have told GlobeSt.com over the last two months. There is a heightened institutional investor interest in single family homes, largely because technology has allowed them to manage and market disparate properties in a way that was impractical 15 to 20 years ago.
But they typically look to properties that are below the median prices in the states where they acquire them. Instead of buying homes across the price spectrum, they aim to the low side because that is what allows enough margin when renting them out. Rather than bidding higher than individual buyers, they’re tending to use liquid resources to move quickly and make cash offers, which sellers like, rather than depending on closing a residential mortgage, a process that can easily take more than a month, even assuming the buyers have the down payment.
In its calculations, the consultancy assumed a purchase at 80% of median-priced existing homes with 5% down and a 30-year fixed rate mortgage, and also included PITI, mortgage insurance, and maintenance costs, the latter of which they pegged in a range from 0.85% to 1.25% of the home’s value.
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