Why Millennials Should Still Stick to Their Homebuying Goals Despite Slowing Rental Price Increases

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In the past decade, the price of renting a home or apartment has increased more than 30 percent, according to the U.S. Bureau of Labor and Statistics. Fortunately, however, the end of 2019 saw a much-needed slowdown in the rise of year-over-year average rental prices nationwide.

As home prices continue to grow and the cost of renting seeming to stagnate, many potential homebuyers may be tempted to abandon their plans of homeownership in favor of continuing to rent. There are several reasons, however, that millennials and other first-time homebuyers would be wise to continue to stay the course toward buying a home despite the recent slow in rental price increases.

Rental Cost Growth Is Slowing, Not Stopping

While December of 2019 saw the slowest growth in rental prices in nearly two years, the average cost of renting still rose by 3 percent. The slowdown in growth is attributed to new rental construction that has reduced the nationwide multifamily property occupancy percentage, theoretically reducing competition and driving prices down. And while more new construction units are set to hit the market in 2020, there is no indication that this increase in unit inventory will completely halt rental cost growth.

In fact, rental prices increased in 2019 in 38 states, up 4.1 percent for single-bedroom units and 5.5 percent for two-bedrooms nationally. The largest increases, of course, continue to be in job-rich cities such as New York and San Francisco, with Phoenix and Las Vegas holding the No. 1 and No. 2 spots for biggest jumps in rent prices last year.

Most market analysts agree that while growth will remain slow throughout 2020, renters should be aware that prices in most areas, especially in urban locations, will continue to creep upwards.

Mortgage Rates Predicted to Remain Low

As home prices continue to rise, many would-be homebuyers may be tempted to forgo a new home purchase in favor of continuing to rent, especially as rent price growth slows. Mortgage rates, however, are predicted to continue to remain at record lows, near or below a 4.00 percent APR for a 30-year-fixed mortgage, throughout 2020. This prediction is based on continued trade tensions with China influencing an unstable market, and the fact that the Federal Reserve has historically refrained from making rate hikes during election years, which 2020 is.

These low rates, which will likely increase slightly toward the end of this year, can offset the higher price tags we are seeing on homes. This means homebuyers may be able to afford to pay more on the price of a house, considering they will be saving significantly on interest over the life of their loan if they lock in a low rate now.

Owning a Home Is Still the American Dream

Affordability remains a top reason aspiring homebuyers have yet to make a home purchase. However, millennials are also reporting to be one of the most motivated generations when it comes to making the dream of homeownership a reality. While this generation is renting longer than their predecessors, for many owning a home is still the ultimate goal.

According to a study released in May 2019, 70 percent of millennials surveyed were willing to forgo creature comforts, like movie tickets and spa days, in order to stash away enough money for a down payment. Additionally, the millennial generation is scaling back on home size as well as making smaller down payments in order to achieve their homeownership goals sooner.

If you are one of the many people desiring to make home ownership a part of your future, slowing rental price growth should not be a factor in working toward that goal. As elections approach and the market continues to shift, there is no guarantee that interest rates will remain low.

What is all but certain, however, is that both home prices and rental costs will continue to rise. So, skip the coffee run today, and envision yourself in your own home that much sooner.

An experienced mortgage professional, like those at AmCap, will be well-versed in the available options and be able to help borrowers determine which program best meets their financials needs and individual circumstances.

To discover the best home loan for you, connect with an AmCap professional in your area by visiting www.myamcap.com.