If you've looked for a nice apartment or home
to rent, you've probably noticed that the monthly cost of renting has risen
substantially over the past few years.
Even with low interest rates, borrowers are
having a tough time qualifying for mortgages. Despite what you see and hear
from lenders, underwriting decisions are still being made on very stringent
criteria that many do not meet.
A second reason, however, is that of
uncertainty –– uncertainty with respect to the pricing stability of owning
versus renting, and uncertainty about job security. Too many prospective buyers
are still reeling from prior real estate losses or are familiar with such
losses endured by a friend or relative.
If you are a landlord, this is probably good
news. Pricing power should remain in your hands for at least a few more years.
And like all real estate, the more in demand your location is, the less
pressure you'll receive regarding pricing.
I would also expect to see news of rising
real estate values. Low rates are still an attractant, but more significant may
be the declines in inventory. Inventories are down because buyers have, indeed,
emerged in some of the hardest-hit areas, believing that they are buying at
rock-bottom prices. Banks are slowly selling off their portfolios of real estate owned through the foreclosure
process, and they are acting more swiftly to foreclose on loans in default,
further reducing the inventory of available homes.
Does this mean that now is the time for some
of the uncertain renters to change their stripes and begin to buy? Maybe. But
that “maybe” is going to have to address all of their fears about employment
stability and property values.
They must mentally commit to being in a
specific location for a long time. They would also want to have a cash safety
net to ride through any extended period of unemployment.
While we are seeing some price appreciation
in certain locations at this very moment, a lot of it is neighborhood-specific
based on demographics, supply and demand. For prices to rise across the board,
inventory will have to drop substantially, and that may take a few more years.
John P. Napolitano is CEO of U.S. Wealth Managementin Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthcompanies.com or on Facebook as JohnPNapolitano and US Wealth
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Securities offered through LPL Financial, Member FINRA/SIPC.
Investment advice offered through U.S. Financial Advisors, a registered investment advisor and separate entity from LPL Financial. The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with resident of the following states: AL, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, KY, LA, MA, MD, ME, MN, NC, ND, NH, NJ, NM, NV, NY, OH, OK, OR, PA, RI, SC, TN, TX, UT, VA, VT, WA, WV. USFA, and U.S. Insurance Brokers, LLC are wholly-owned subsidiaries of U.S. Wealth Management. U.S. Wealth Management companies are not affiliated with LPL Financial.
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