If you have ever rented or try to rent real estate in Chicago, you have seen first-hand how rental rates have increased. Pricing many, wishing to rent property, out of desirable neighborhoods. What you may not be familiar with is the 1997 Illinois state law, prohibiting rent control in the state, has allowed landlords to significantly raise rental prices and create “rent-burdened” residents.
However, changes to this law could be considered soon. If a recent advisory referendum vote is an accurate indicator of how most Chicago residents feel about rent control, ending the ban on rent control will be welcome by Chicagoans.
According to an article published by Crain’s Chicago Business, written by Dennis Rodkin, the advisory referendum was placed on almost 80 precincts’ ballots. The result was that in each of the 76 precincts, “at least 60 percent of the votes cast were in favor of lifting the ban, and in most the figure was above 75 percent.” Its seems that lifting the ban is widely supported. Only time will tell if change to this ban will come as a result.
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The debate over why households choose renting over purchasing a home in the United States has been a hot topic lately. Analysts have indicated the young generation of millennials are not interested in being tied down to home ownership and prefer renting over buying. However, an article published by CNN by Daniel B. Kline, points out that it is not just millennials who are opting to rent instead of making a home purchase. Kline also notes that the decision to rent may not be a lifestyle choice, but a financially driven decision.
It is true that the number of households renting a home has increased over the past decade; almost by 10 million. It is also true that 65 percent of household headed by those 35 years old and younger rent their homes. However, it’s the heads of households aged 35-44 that made the biggest increase over the past decade. In this age group, “the percentage of renters jumped from 31% in 2006 to 41% in 2016”. Heads of households between 45-65 renting homes also increased over the past decade.
However, these households may not all be renting based on lifestyle choices. In fact, research indicates that many who rent homes would actually like to purchase a home someday. Further, surveys show that 65% of renters indicated that they are renting homes due to circumstances, not purely by choice. Circumstances such as increased home prices and tougher mortgage standards may be partially to blame.
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Photo Credit: Mark Moz
The low inventory of homes for sale is causing some real estate companies to panic a bit. The number of homes for sale March 2017 compared to March 2016 fell seven percent according to the National Association of Realtors. In an article published by CNBC by Dian Olick, she quotes Glenn Kelman, CEO of Seattle-based Redfin, a real estate firm, “”The inventory is reaching historic lows. It’s never declined faster than it did last month. It’s freaking us out — it’s affecting our business; it’s limiting our sales.”
The cause of this low inventory issue can be attributed to a few factors. To begin, many homeowners are deciding to become landlords. Instead of selling a home when moving on, homeowners are holding on to their home and renting it out. Another reason is new home construction is declining. On average, home builders are building about 18 percent fewer homes than the historic average.
The good news for home owners looking to sell, homes are selling quickly and some are even selling above list price. Homes in April 2016 went under contract in 50 days, as of April 2017, that number decreased to 40 days.
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The number of U.S. homeowners is at a 50 year low, many more households have decided to rent a home instead of purchase their own home. Although the reasons for this decision vary, many might assume renting is a more cost effective choice than making the commitment to purchase a home.
However, in a study performed by Trulia which compared the monthly expenses associated with renting and owning a home, it found that renting can be 37.7 percent more expensive than owning a home. The study included monthly expenses such as mortgage payments, taxes, home owners insurance and the cost of upkeep and repairs. The major factor influencing the affordability of buying a home is, of course, the low mortgage rates that are still available to buyers.
Even the possibility of a Federal rate increase won’t have much effect on the affordability of homes. According to the article written by Kendall Baer, published by DSNews, “…Rates would need to increase drastically in order to push the rent vs. buy decision toward renting.” In fact, in many areas of the U.S., home prices are increasing and it is that rise in home prices that will truly impact housing affordability.
Nevertheless, a number U.S. real estate markets have reported rental expenses that fall significantly below the monthly expenses of owning a home. To find out in which areas of the U.S. it makes more sense to buy a home and in which areas, renting may be a more cost effective option, read the entire article.
This summer is the perfect time to consider purchasing a home. An article published by RealtorMag details three reasons buyers should not delay a home purchase any longer.
To start, home prices are not expected to remain steady at current prices, let alone dip below current values. In fact, home values have been increasing over the past twelve months and are expected to appreciate over the next five years at a rate of at least 3.2 percent a year.
Furthermore, mortgage rates are still hovering close to the record low, last week averaging 3.41 percent for a 30-year fixed rate mortgage. However, it is predicted that these rates will rise soon. In fact, it is expected that mortgage rates will rise an entire percentage point by next summer.
As a result, households currently renting instead of owning should consider moving forward with a home purchase. As documented in a Harvard housing study, renting does not make financial sense for most households. Renters miss out on not only the tax breaks that come with home ownership, but instead of paying down on their own investment, they are helping landlords pay off their investment plus a rate of return.
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It had been predicted that the Millennial Generation (18-34 year olds), would be key to a healthy rebound in the real estate market. However, based on new survey data released by Redfin, they might actually be responsible for the low inventory of homes for sale.
Millennials are, for the most part, more optimistic about the housing market. They have not seen home mortgage rates over 5 percent and have been able to build more equity than home owners of older generations. Additionally, they are confident they will see an increase in home values over the next year.
Therefore, according to the survey, millennials are more apt to rent out their home instead of selling their starter home. As a result, the supply of homes for sale will continue to remain low. A recent article on DSNews.com by Brian Honea indicates “…28 percent of millennials plan to rent out their house instead of selling it, compared to only 4 percent of homeowners ages 55 and older.”
For more information, read the entire article.