Rent increases seem to be the norm rather than the exception in the Columbia SC housing market. While increases affect renters at all income levels, those near the bottom are being hardest hit.
Rent Inflation Affects Columbia SC Housing
Higher rents are having a greater impact on the lower-cost housing units than on the higher-cost units say researchers for the Federal Reserve Bank. They reviewed national data compiled by the American Housing Survey from 1989-2013 to estimate the rate of inflation for rents and utilities. Their findings concluded around 32 million dwellings were constructed during that timeframe. Roughly 10.8 million were built to be marketed to the highest income earners, compared to only 3.1 million targeting the lowest income group.
The researchers further conclude increased numbers of new units attracting high-end earners is likely responsible for higher vacancy rates. Less competition among tenants helps mitigate rent inflation in that income group. Despite rents being higher for those new units, as a percentage it usually doesn't rise as much as the lower-cost rental units. The reason? Supply of rental units at the lower end of the spectrum is more apt to occur from rents that were once higher, but have been lowered into the next bracket. The result is a "trickle-down" effect, meaning those units will probably still have higher rents than the lower-end housing, pushing up rent inflation for that segment.
During 2011-2013 rent inflation in the lowest bracket represented in the data was roughly 16%. Inflation in the highest bracket was -.4%.
This comes as little surprise to renters in the Columbia SC housing market. Annual rent growth during September was 5.2%, representing the highest increase since 2011 and marking the eighth consecutive month the rate has been 5% or more.
Based on a nationwide survey by property rental website Rent.com, property managers expect to raise rents as much as 8% next year. This is due to an anticipated rise in demand and a drop in vacancies. Vacancy rates for rental units across the nation recently dropped to 6.8% — the lowest in twenty years.
Further affecting the rent inflation dilemma is that construction of multifamily housing came to a surprising halt during the housing crisis. New units recently added are barely meeting pent-up demand. Rents and occupancy levels are enjoying all-time highs, driven in part by higher demand and lower supply. While new construction permits for multifamily units are within 1% of where they were during the same month last year, most of the new supply is in higher-priced markets. The urban centers of major cities have benefitted, but not renters in suburbia or in less-populated cities desperately in need of more affordable rental units.
Columbia SC housing experts say more than 25% of renters currently spend over 50% of their income on rent.
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Indirectly addressing concerns that the current Columbia SC housing market — among others across the nation — is destined to suffer the woes of the housing collapse of less than a decade ago, Former Federal Reserve Chair Ben Bernanke recently shared his thoughts on the subject.
Has Columbia SC Housing Learned a Lesson?
Bernanke said there were a number of factors that led to the housing bubble and the 2008 financial crisis. He has been quoted as saying "financial regulatory supervision should be the first line of defense against asset price bubbles and other risks to financial stability." While the Federal Reserve was largely criticized for their monetary policy prior to the crisis, Bernanke contends the policy wasn’t the main reason for the housing bubble. If anything, the Fed may not have done enough to regulate mortgage lending at the time.
He cited growing political support during that time for sub-prime lending as a means to provide the “American Dream” of home ownership. The positive end, therefore, justified the questionable means. And while government regulators were adamant in their efforts to get rid of predatory lending they turned a blind eye toward other bad lending practices. As a result, the Columbia SC housing market suffered greatly.
Bernanke seems satisfied that a number of specific shortcomings were addressed as a result of the housing bubble and ensuing collapse. In fact, he says, some people feel that mortgages are too hard to get — an “overcorrection” has resulted in trying to prevent a recurrence of the past. Yet he contends the financial system is stronger and banks and other lender capital is higher, creating a more resilient system than before.
Many Columbia SC home buying experts say that more people are waiting longer to purchase. This is especially true with the generation known as "Millennials," those in their late 20s to mid 30s. In fact, according to Zillow the average age of most first-time home buyers is 33, compared to 29 in the late 1970s.
An Inside Look at Columbia SC Home Buying
While the housing industry has been deemed strong and vibrant, and even though interest rates are low, many young Americans are reluctant to enter the Columbia SC home buying arena. Real estate experts say their hesitation to buy often is the result of concerns about increasing non-housing expenses in an uncertain and often volatile economy. Factors such as the high cost of health insurance and medical care, college expenses and rising student loan debt worry prospective home buyers.
Millennials aren't necessarily worried about higher home prices as much as they are these and other factors — including social influences. In many instances they are more apt to living in places that better suit their interests and lifestyle, regardless of whether they have to rent in lieu of building equity in a home of their own. The "double-edged sword, " however, is that higher rents in some urban areas can mean a greater difficulty in saving for a down payment when they're ready to enter the Columbia SC home buying market.
In addition, industry insiders say, some prospective home buyers see homeownership as a big risk. They grew up in a time where they saw friends and family adversely affected by the most recent housing collapse. Quite naturally, that event left an indelible mark on the psyche of many of them.
Another important factor preventing some from making Columbia SC home buying decisions is the job market. Most Millennials finished college during the recent recession of less than a decade ago. Many were unable to find desired employment and had to settle for whatever jobs were available. Mounting student loan debt and higher rents have forced many to plade their home buying dreams on the back burner.
One final reason some young people have eschewed the Columbia SC home buying experience is their ongoing love affair with "instant gratification." And while that would ordinarily indicate their desire to enter the market in search of a new home with modern conveniences and little maintenance, the cost of doing so is prohibitive. They are forced, therefore, to consider the typical "fixer-upper," which appeals only to a segment of their generation's population.
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Columbia SC real estate prices are rising. And that's both good news and bad news, depending on whether you're a home seller or a home buyer. According to the National Association of Realtors the median home price in the United States was up over 8% in the second quarter of this year compared to the same period a year ago. The median sales price was $229,400.
Columbia SC Real Estate Prices Rising: Good News and Bad News
The good news. Higher prices mean increased home equity and hire individual net worths. That equity can be used to purchase additional investment property or a larger home or a small business. Therefore, higher real estate prices are good for stimulating the economy.
The bad news. Incomes have not kept the pace with higher prices. Although the national unemployment rate has dropped from 10% in October 2009 to a current level of 5.1%, income growth has been sluggish. In addition, there are still millions of Americans unemployed. And when wages aren’t increasing it makes it more difficult for buyers to trade up or refinance — and it especially impacts first-time home buyers.
Zillow reports that lower-income households spend 26% of their income on a home mortgage payment. Conversely, higher-income households spend an average of 12% on their mortgage. Industry experts point to that fact as a confirmation that lower incomes are flat and stagnant and higher incomes are slowly rising. The sad truth is despite low mortgage rates making mortgage payments more affordable, for lower-income families allocating more towards a monthly payment means trimming the budget in other areas.
Columbia SC real estate prices, although on the upswing, will have a longer road to return to their pre-recession levels. The question remains, however, as to how rising prices will affect those in the lower-income and middle-income range. Lenders and borrowers alike will keep a watchful eye on prices to ensure history doesn’t repeat itself in the loose credit, overextended market that led to the most recent housing collapse.
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The Columbia SC housing market has been anticipating a possible interest rate hike by the Federal Reserve Bank. Analysts say a small interest rate hike will have little effect on housing activity. In fact, there are other components that are more telling that could impact Columbia SC housing.
What to Look for in the Columbia SC Housing Market
Some industry insiders say the only potential threat that may exist as a result of a rate hike would be the effect it has on credit standards for buyers trying to qualify for a mortgage loan.
First time home buyers could potentially see loan qualifications tighten as those credit standards change. The tighter credit policies have typically been implemented to guard against a repeat of the housing crisis from less than a decade ago.
In the years preceding the last housing crisis, the Columbia SC housing market included borrowers that had bought beyond their abilities to repay. When the economy weakened and unemployment rose the market quickly saw how home values were artificially inflated.
There is concern among some analysts that three factors continue to plague the housing industry — despite activity and sales being the highest in the previous eight years.
1. The recent psychological shift among Millenials to become more urban, city dwellers instead of suburban homeowners.
2. The fear that Fannie Mae, Freddie Mac and the FHA are returning to their old ways with low down payment requirements that may lead to higher loan-to-value (LTV) ratios. Still, other real estate analysts say as the younger Millenials have children the trend seems to be changing as they seek better schools and other attractive features of suburban living.
3. The unemployment rate. Jobs are more of a Columbia SC housing market indicator that other factors. Housing is strong where there is lower unemployment. The rule of thumb is a high employment rate, the slower the housing market.
Lastly, the main reason there seems to be little fear that a rate hike may affect Columbia SC housing is in dollars and cents. A 1/4 point rate increase on a $250,000 mortgage only increases the monthly payment by roughly $35. Experts say it usually takes an increase of a full percentage point to make a noticeable affect on consumers.