Rising Rents Driving Home Purchases in many markets
I have been feeling this for the last 6 months, but now a new Zillow study has confirmed my suspicions. Housing sales for June and July hit 10-year record highs. Closings were up 17 percent in July over 2014. Additionally, total number of homes for sale dipped a little.
What is driving this? surprisingly, the cost of renting is driving the purchase of houses. Huh? All these new fancy apartment buildings being constructed around the Twin Cities are driving rent prices up. During the past five years more than 13,000 apartments have been built in the Minneapolis / St. Paul area. Each one is trying to outdo the other with everything from on-site dry cleaning to large balcony entertaining areas to bowling alleys (yup) to indoor car washes. Well, those extra amenities cost money and that is driving up rent. According to Zillow, in the Twin Cities, renters can expect to pay over 25% of their income for rent versus about 14% for homeowners (on their mortgages). This rent amount is up 6% in just the last couple years.
This gap and the very cheap mortgage rates are pushing renters to consider simply buying houses. Unfortunately, as the market is very hot right now, it is difficult for them to find good buys and most end up in multiple offers above list. Are we back to crazy market of 2000?
If you are considering buying a rental property, now is a great time to own. While you may be competing for that house with the same people who might have rented it just months ago, rent amounts are staying strong.