Renting vs. Buying: The Net Worth Gap You Need To See
Renting vs. Buying: The Net Worth Gap You Need To See Trying to decide between renting or buying a home? One key factor that could help you choose is just how much homeownership can grow your net worth. Every three years, the Federal Reserve Board shares a report called the Survey of Consumer Finances (SCF). It shows how much wealth homeowners and renters have – and the difference is significant. On average, a homeowner’s net worth is nearly 40 times higher than a renter’s. Check out the graph below to see the difference for yourself: Why Homeowner Wealth Is So High In the previous version of that report, the average homeowner’s net worth was about $255,000, while the average renter’s was just $6,300. That’s still a big gap. But in the most recent update, the spread got even bigger as homeowner wealth grew even more (see graph below): As the SCF report says: “. . . the 2019-2022 growth in median net worth was the largest three-year increase over the history of the modern SCF, more than double the next-largest one on record.” One big reason why homeowner wealth shot up is home equity. Equity is the difference between your home’s value and what you owe on your mortgage. You gain equity by paying down your mortgage and when your home’s value goes up. Over the past few years, home prices have gone up a lot. That’s because there weren’t enough available homes for all the people who wanted one. This supply-demand imbalance pushed home prices up – and that translated into faster equity gains and even more net worth for homeowners. If you’re still torn between whether to rent or buy, here’s what you should know. While inventory has grown this year, in most places, there’s still not enough to go around. That’s why expert forecasts show prices are expected to go up again next year nationally. It’ll just be at a more moderate pace. While that’s not the sky-high appreciation we saw during the pandemic, it still means potential equity gains for you if you buy now. As Ksenia Potapov, Economist at First American, explains: “Despite the risk of volatility in the housing market, homeownership remains an important driver of wealth accumulation and the largest source of total wealth among most households.” But prices and inventory are going to vary by area. So, lean on a local real estate agent. They’ll be able to give you the local trends and speak to the other financial and lifestyle benefits that come with owning a home. That crucial information will help you decide the best move for you right now. As Bankrate explains: “Deciding between renting and buying a home isn’t just about cost — the decision also involves long-term financial strategies and personal circumstances. If you’re on the fence about which is right for you, it may be helpful to speak with a local real estate agent who knows your market well. An experienced agent can help you weigh your options and make a more informed decision.” Bottom Line If you’re not sure if you should rent or buy, keep in mind that if you can make the numbers work, owning a home can really grow your wealth over time. And if homeownership feels out of reach, connect with a local real estate agent and lender. They can help you explore programs that may make buying possible. November 7, 2024/by KCM CREW
Redfin Reports The Number of Renter Households Is Growing Three Times Faster Than Homeowner Households
November 05, 2024 8:00 am EST San Jose, CA, Los Angeles and San Diego have the highest shares of renter households, while Cape Coral, FL, Charleston, SC and Columbia, SC have the lowest SEATTLE--(BUSINESS WIRE)-- (NASDAQ: RDFN) — The number of renter households rose 2.7%, in the third quarter year over year, to a record 45.6 million. That’s according to a new report from Redfin (redfin.com), the technology-powered real estate brokerage. That rate of growth is three times faster than the 0.9% increase in homeowner households, which now total a record 86.9 million. The 2.7% increase—representing 1.18 million additional renter households—was the second fastest pace since 2015, only trailing the first quarter’s 2.8% rate. Renter households have formed faster than homeowner households for the past four quarters as the cost of buying a home rose faster than the cost of renting. The median asking rent was up 0.6% year over year in September, but rents have remained largely flat for the past two years—becoming more affordable as wages grew at around 4%. In contrast, home prices climbed 6% year over year in September and have grown more than 10% in the past two years. Highlighting the affordability barriers that exist for prospective homeowners, just 2.5% of U.S. homes changed hands in the first eight months of 2024—the lowest rate in decades. “Affordable housing has been at the forefront of this election cycle because so many people are struggling to see how they will ever become homeowners—especially those from younger generations,” said Redfin Senior Economist Sheharyar Bokhari. “With home prices at record highs and mortgage rates remaining elevated, renting is increasingly the only viable choice for many young people and families. Building more homes will help address that, but we also have to recognize that Gen Z and future generations may not view homeownership as a life goal and the rentership rate may continue to rise for years to come.” New multifamily units are being completed at a record pace Part of the reason rents have remained stable—and renting has become more attractive to many—is the boom in multifamily construction over the past two years. The country is adding new multifamily housing units at an annual rate of 647,000 (as of the third quarter)—the fastest pace in records dating back to 1994. The recent boom in multifamily construction helped meet surging demand in some areas—especially in Sun Belt states—but builders are now pumping the brakes. Permits to build multifamily housing units were down 16% year over year in September, and down 47% from the post-pandemic high in February 2023—which was the highest mark in nearly 40 years. More than half the households in San Jose and Los Angeles rent Nationwide, just over one-third (34.4%) of households in the U.S. are renter households—a figure that has remained the same for the past three quarters. The rentership share is highest in metros in California and in New York City, where homes are generally more expensive to buy. San Jose, CA has a rentership rate of 52%, the highest among the 75 largest U.S. metropolitan areas. It’s followed by Los Angeles (50.8%), New York (49.1%), San Diego (48%) and Fresno, CA (47.4%). Rentership rates are lower in metros where, historically, it’s been more affordable to buy a home. In Cape Coral, FL, 21.8% of households are renter households—the lowest share among the metros Redfin analyzed. It’s followed by Charleston, SC (23.7%), Columbia, SC (24.5%), Allentown, PA (27.2%) and Detroit (28.2%). To view the full report, including charts, methodology and additional metro level data, please visit: https://www.redfin.com/news/renter-household-growth-q3-2024 About Redfin Redfin (www.redfin.com) is a technology-powered real estate company. We help people find a place to live with brokerage, rentals, lending, title insurance, and renovations services. We run the country's #1 real estate brokerage site. Our customers can save thousands in fees while working with a top agent. Our home-buying customers see homes first with on-demand tours, and our lending and title services help them close quickly. Customers selling a home can have our renovations crew fix it up to sell for top dollar. Our rentals business empowers millions nationwide to find apartments and houses for rent. Since launching in 2006, we've saved customers more than $1.6 billion in commissions. We serve more than 100 markets across the U.S. and Canada and employ over 4,000 people. Redfin’s subsidiaries and affiliated brands include: Bay Equity Home Loans®, Rent.™, Apartment Guide®, Title Forward® and WalkScore®. For more information or to contact a local Redfin real estate agent, visit www.redfin.com. To learn about housing market trends and download data, visit the Redfin Data Center. To be added to Redfin's press release distribution list, email press@redfin.com. To view Redfin's press center, click here. View source version on businesswire.com: https://www.businesswire.com/news/home/20241105783328/en/ Contact RedfinRedfin Journalist Services:Kenneth Applewhaitepress@redfin.com Source: Redfin Released November 5, 2024 https://investors.redfin.com/news-events/press-releases/detail/1209/redfin-reports-the-number-of-renter-households-is-growing?distinct_id=hYtR6AyJa&user_email=gemma%40flhomeandloan.com
What To Look For From This Week’s Fed Meeting
What To Look For From This Week’s Fed Meeting You may be hearing a lot of talk about the Federal Reserve (the Fed) and how their actions will impact the housing market right now. Here’s why. The Fed meets again this week to decide the next step with the Federal Funds Rate. That’s how much it costs banks to borrow from each other. Now, that’s not the same thing as setting mortgage rates, but mortgage rates can be influenced through this process. And if you’re thinking about buying or selling a home, you may be wondering about the downstream impact and when mortgage rates will come down. Here’s a quick rundown of what you need to know to help you anticipate what’ll happen next. The Fed’s decisions are guided by these three key economic indicators: The Direction of Inflation How Many Jobs the Economy Is Adding The Unemployment Rate Let’s take a look at each one. 1. The Direction of Inflation You’ve likely noticed prices for everyday goods and services seem to be higher each time you make a purchase at the store. That’s because of inflation – and the Fed wants to see that number come back down so it’s closer to their 2% target. Right now, it’s still higher than that. But despite a little volatility, inflation has generally been moving in the right direction. It gradually came down over the past two years, and is holding fairly steady right now (see graph below): The path of inflation – though still not at their target rate – is a big part of the reason why the Fed will likely lower the Fed Funds Rate again this week to make borrowing less expensive, while still ensuring the economy continues to grow. 2. How Many Jobs the Economy Is Adding The Fed is also keeping an eye on how many new jobs are added to the economy each month. They want job growth to slow down a bit before they cut the Federal Funds Rate further. When fewer jobs are created, it shows the economy is still doing well, but gradually cooling off—exactly what they’re aiming for. And that’s what’s happening right now. Reuters says: “Any doubts the Federal Reserve will go ahead with an interest-rate cut . . . fell away on Friday after a government report showed U.S. employers added fewer workers in October than in any month since December 2020.” Employers are still hiring, but just not as many positions right now. This shows the job market is starting to slow down after running hot for a while, which is what the Fed wants to see. 3. The Unemployment Rate The unemployment rate shows the percentage of people who want jobs but can’t find them. A low unemployment rate means most people are working, which is great. However, it can push inflation higher because more people working means more spending—and that makes prices go up. Many economists consider any unemployment rate below 5% to be as close to full employment as is realistically possible. In the most recent report, unemployment is sitting at 4.1% (see graph below): Unemployment this low shows the labor market is still strong even as fewer jobs were added to the economy. That’s the balance the Fed is looking for. What Does This Mean Going Forward? Overall, the economy is headed in the direction the Fed wants to see – and that’s why experts say they will likely cut the Federal Funds Rate by a quarter of a percentage point this week, according to the CME FedWatch Tool. If that expectation ends up being correct, that could pave the way for mortgage rates to come down too. But that doesn’t mean they’ll fall immediately. It will take some time. Remember, the Fed doesn’t determine mortgage rates. Forecasts show mortgage rates will ease more gradually over the course of the next year as long as these economic indicators continue to move in the right direction and the Fed can continue their Federal Funds rate cuts through 2025. But a change in any one of the factors mentioned here could cause a shift in the market and in the Fed’s actions in the days and months ahead. So, brace for some volatility, and for mortgage rates to respond along the way. As Ralph McLaughlin, Senior Economist at Realtor.com, notes: “The trajectory of rates over the coming months will be largely dependent on three key factors: (1) the performance of the labor market, (2) the outcome of the presidential election, and (3) any possible reemergence of inflationary pressure. While volatility has been the theme of mortgage rates over the past several months, we expect stability to reemerge towards the end of November and into early December.” Bottom Line While the Fed’s actions play a part, economic data and market conditions are what really drive mortgage rates. As we move through the rest of 2024 and 2025, expect rates to stabilize or decline gradually, offering more certainty in what has been a volatile market.
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