Rental Market Remains Strong as Affordability & Home Ownership Decline in 2014
Despite a recent upswing in homeownership, higher mortgage rates, more expensive home prices, increased supply, and new mortgage rules are expected to slow down home value gains in 2014.
Redfin and Zillow have predicted between a three to five percent rise in home price for 2014. As mortgage rates rise, experts also predict a continued decline in affordability from last year, when the National Association of Realtors’ Home Affordability Index dropped to a five-year low.
The homeownership rate is also expected to continually decline due to strict lending standards and down payment requirements. According to RentRange, each one percentage point decrease in homeownership represents a requirement of approximately 1.1 million new rental housing units. Zillow predicts that in 2014, homeownership rates will fall below 65 percent for the first time in 19 years. This would mark the ninth consecutive year of decline since the peak of 69 percent in 2004.
New mortgage rules aimed at guarding against the risky lending practices that fed the housing bubble require mortgage lenders to ensure borrowers can actually afford their loans over the long term. Lenders will weigh borrowers’ income, assets, savings, and debt against their monthly house payments to determine whether they meet the ability-to-repay requirements.
These new mortgage rules could make it tougher for borrowers to qualify, especially those whose income largely includes tips, bonuses, commissions, rents, or investments, as well as the one in nine Americans who are self-employed.
As more Millennials move out of their parents’ homes, and most likely into rentals, the overall homeownership rate will continue to decrease. According to an article from Kiplinger, housing analysts expect the economy to expand enough in the coming year to enable young people to begin moving out but says they are more likely to rent than buy a home, due to a number of factors including student debt and inability to attain a loan.