More renters are becoming owners.
The National Association of Realtors (NAR) reports that home sales in the first few months of 2015 will be stronger than average.
Mortgage rates in the high 3’s are making house payments more affordable. Combine that with climbing rent prices and it’s a recipe for renters to lock in their housing costs by becoming homeowners.
NAR Pending Home Sales Report Forecasts 2015 Real Estate Market
The NAR’s Pending Home Sales Index measures how many people are signing contracts to buy homes. These transactions are not yet done deals, but will most likely turn into closed transactions.
Eighty percent of home shoppers who sign a Purchase and Sale Agreement – a contract to buy a home – will complete their purchase in 30 to 60 days. Another big chunk will become homeowners in 60 to 120 days.
The most recent report showed data from November 2014, so most of these transactions will close between December 2014 and March 2015. It will be a great start to the 2015 real estate market.
The Pending Home Sales report analyzes 20% of the U.S. real estate market. It tallied a “score” of 104.8 for November. A score of 100 indicates a housing market comparable to that of 2001, a year with a fairly robust market.
November was strong, but the strength is not new. There has been above-average activity in home buying since May. The Pending Home Sales Index has been bouncing around between 102 and 105 since then, and touched a 2014 high in July at 105.8.
There are a couple explanations for increased home buying activity: mortgage rates and rent prices.
The Push & Pull on Renters
Renters are feeling encouraged to buy a home from all sides. Market factors are pushing them out of their rental living situation while pulling them to become owners.
The Push: Skyrocketing Rents
Renters are feeling forced out of their current space by rising rents. Landlords are becoming relentless.
According to a recent Wall Street Journal article, rents are up 15% from 2009. In just the past year, rents have risen more than 3% nationwide.
The landlord’s market will strengthen over the next 18 months, according to the article. More renters will come home to rent price increase notices and have to come up with hundreds of dollars extra per month in some cases.
Many renters simply say enough is enough, and start looking for a home.
The Pull: Mortgage Rates in the 3s.
While rents increase, mortgage rates are plummeting.
The Freddie Mac national average 30-year fixed rate has come in under 4% for seven straight weeks. For renters, there have been few better historical eras to in which to lock a mortgage rate and payment. The low rates are pulling renters to complete their home buying goals as soon as possible.
The most recent Freddie Mac average rate was 3.87%. A homebuyer with good credit can buy a $250,000 home with just 5% down for only $1450 per month. This amount includes PMI, taxes, and insurance.*
The cost is low, but the real advantage is the fixed monthly costs. The 30-year fixed rate mortgage – by far the most popular – allows homeowners to keep this payment for 30 years and avoid surprise increases.
With such affordable, fixed payments renters are discovering that buying a home is a better long-term decision.
Is 2015 the Year of the Home Buyer?
The coming year seems to be shaping up to be a great time for home buying. The environment in 2015 should be one of low rates and easing mortgage underwriting standards.
In late 2014, Fannie Mae and Freddie Mac announced a 3% down payment home buying program. The low down payment requirement will help renters overcome the main barrier to home buying which continues to be the upfront cash needed for down payment.
Lenders are loosening standards for FHA and VA loans, allowing those with less than perfect credit to buy a home. USDA home loans are one of the few zero-down loans available, and have helped thousands of rural and suburban renters become owners. These loan options will continue to grow in popularity through 2015.
Ready to Become a Homeowner?
Renters all across the country are becoming homeowners. Pushed by rising rents and pulled by low rates, renters are opting to own.
See if you are eligible to buy a home. Click here for a free, no obligation rate quote and home buying analysis. You will find out if you qualify and how much you can afford. Start on your home buying goals now and you could be enjoying your new home and low, fixed payments in a few short months.