Lawrence Yun, Chief Economist for the National Association of Realtors, wrote an interesting article in last month's Realtor Magazine, warning of an impending squeeze on renters in 2022. As consumers, we have seen the inflationary pressure for months, on everything from lumber and building materials to tools and food. We of course cannot ignore housing, where in northern Colorado, we have seen a roughly 25% increase in average home prices this year.
Mr. Yun explains that there are two main reasons that rent rates will soar next year: First, we have gained back almost all of the jobs lost in the pandemic. Those folks that were crashing with parents or friends in basements now have the income to move to their own abode. Second, with average home prices up almost 40% in the last 2-3 years, many first-time homebuyers are simply priced out of the market now. In the Fort Collins-Loveland market, we are staring at a $600,000 average single family home now. With 6% down (the national average), that is a monthly mortgage payment of $2900, and that's before HOAs, metro taxes, and PMI take their bite. An average home payment could end up being $3500 per month. Apartment rents are high, but not that high.
Mortgage applications have been falling steadily, along with the share of of sales to first-time home buyers. Combined with anticipated higher interest rates next year (the Fed has unanimously indicated that they will reduce the purchase of mortgage-backed securities), even if home prices stay the same, higher interest rates will cause those monthly payments to climb.
And will home prices stay the same? Unlikely. Nationwide, we are still at a 5.5-6 million housing unit shortage. In northern Colorado, we hit a low of .7 months of remaining inventory in October. In plain speak, that is just over a 2 week supply of housing. In a normal year, we would have anywhere between 3 and 7 months of inventory. In the frustrating words of John McEnroe, are you kidding me?
Fannie Mae will soon take into account rental payment history in order to qualify buyers. This will help a bit. But overall, with new home builders still spooked from 2008-2009 and local municipalities reluctant to allow commercial property conversions into residential, our housing supply shortage is going to stick around for awhile, causing both higher rental rates and more first time home buyer anguish.
Cover photo courtesy of Pixabay's Qimono
James Sack, REALTOR®
Coldwell Banker Residential Brokerage
1109 Oak Park Drive | Fort Collins, CO 80525
C: (970) 217-9705 | O: (970) 223-6500 | E: James.Sack@coloradohomes.com | W: www.JamesSack.com