Blog posted On November 20, 2018
The National Association of Realtors (NAR) predicts home sales will increase in 2019, while home price appreciation starts to slow. Following 2017, the best year for home sales in over a decade, existing home sales are expected to close out 2018 down a slight 1.5% to a seasonally adjusted annual rate of 5.345 million transactions.
Despite positive expectations, many renters still perceive renting as more affordable than homeownership. Research conducted by Freddie Mac found that the affordability misconception spans generations with 75% of Millennials, 70% of Generation Xers, and 81% of Baby Boomers all reporting that they believe renting is more affordable over owning. With interest rates expected to continue rising, more and more renters are subscribing to the idea that renting is financially comparable to homeownership. However, even when monthly rental payments and mortgage payments near the same rate, renters are not building home equity.
In the United States, homeowners’ home equity exceeds $14.4 trillion, an all-time high. Homeowners can “tap into” or withdraw home equity to pay for home renovation or remodeling, consolidate debt, or cover another expense. Renters do not have the option to access all of the rental deposits they have been making over the years.
Homeowners can also benefit from a mortgage refinance at almost any time, depending on the type of loan and terms. According to Freddie Mac, 66% of renters reported difficulty affording their rent at some point over the past two years, while only 43% of homeowners had trouble paying their mortgage during the same duration. A mortgage refinance can help lower payments, lower the cost of interest, or shorten the mortgage terms, while renters have little control over their rental rate throughout their tenancy. Landlords can raise the rent or change lease terms, whenever a current lease expires.
Sustained job growth and strong Gross Domestic Product expansion signals the economic conditions are favorable for additional interest rate hikes in the coming year. NAR chief economist Lawrence Yun commented on these economic trends, “this type of activity in the economy should support the housing market, even as interest rates rise.”