Rent Vs. Buy in Utah County

I watched a video this morning that directed me to an article on CNN Money titled “It’s getting more expensive to be a renter” by Kathryn Vasel. The article used statistics from the real estate portal site Zillow citing rental costs increasing 4% in April from the previous year whereas home prices rose by 3%. The article doesn’t mention Utah at all and it’s likely that our numbers here are different with the rise in home values we’ve seen especially in Utah County.

However, having just finished renting for the past six months prior to purchasing our new home earlier this month I feel I’m quite qualified to make market comparisons for Utah County. Moving back to Utah knowing that we would have to rent for at least a little while gave me the opportunity to find out just what renting would get me in Utah County. With a family of six and moving from a 2500 sq ft home in Arizona we knew we wanted at least that much space in a home we were to rent. After a month or two of searching for a home around that size I quickly realized we were going to be hard pressed to find it within our budget. Especially when we preferred to spend around $1,500 per month on rent. The breaking point when it came to finding what we preferred, a newer home with 4 finished bedrooms and perhaps a third car garage, seemed to be right at $1,800 per month. Anything below $1,800 began to lose the qualities we were looking for. What complicated things more was finding a home with a minimum of 2500 sq ft finished that didn’t include additional unfinished square footage making the overall size closer to 4000 to 5000 sq ft and way out of affordability.

Good fortune seemed to be on our side when we happened upon an opportunity to lease a property for six months that wasn’t quite what we had been searching for, but was in a great neighborhood and would allow us the flexibility of purchasing a home on our own timetable. This older and smaller home in Lehi had the four bedrooms we were looking for and was close to family. That’s where the amenities we looked for stopped. The property had roughly 1700 finished sq ft of living space with an additional 400 sq ft of unfinished basement we were able to put to good use storing most of our unpacked possessions. What we ended up with was a rent of $1,550 a month paying about $0.74 per sq ft a month compared to the mortgage we left in Arizona of $0.50 per sq ft a month.

Now, just to clarify, I did not spend a lot of time worrying about this or analyzing these cost differences while looking for a place to rent or for the six months we were there. My wife and I knew that we wanted a place of our own and that we wouldn’t feel settled until we had it. This article on CNN is what prompted me to take an analytical view in hindsight of the situation I was in and I have to say I’m quite pleased. We were able to find a home that suits us very well, has most of the things we were looking for plus some great features we weren’t and far outpaces our rate of expense on the rental coming in just under $0.53 per sq ft a month.

I haven’t touched on any of the other things that are typically discussed when making this rent vs. buy comparison such as other inherent expenses of home ownership you don’t deal with as a tenant and I’m not going to at this time. The point I want to make clear is that with a mortgage this rate of monthly expense is fixed on average for 30 years all the while creating equity in property that you own. Rental rates have done nothing but rise since before the last market crash and show no signs of slowing down and there is definitely no wealth building opportunity built in to renting.

The argument doesn’t just deal with spending the money on rent vs. equity, it’s also about not knowing what the payment will be at the start of the next leasing period while leasing.

If you are renting and would like to know more about your ability to purchase a home there’s no better time to sit down with me and discuss your options. I work with the best lenders in the real estate industry who give just as freely with their time as I do. When it comes to putting the information you need into your hands I’m always here to help. Feel free to contact me for a no obligation opportunity to find out where you are when it comes to buying your first or next home.

Let’s Start this Blog off!

A HOT Market!

Talk about a hot market! Right now it is becoming more and more difficult for buyers to find a home that works for them. Why is that you ask. There are many contributing factors, the biggest of which is inventory or supply. At the moment, demand is higher than supply. Coming out of the housing recession existing homes for sale as inventory was extremely high and the demand for new homes was virtually non-existent. From 2008 to somewhere around 2011 – 2012 new building permit applications were at all time lows across most of the Western US including Arizona and Utah where I am licensed.

Here in Utah county we’ve seen a resurgence in new construction over the last couple of years with builders coming out of the woodwork to attempt to meet the demand for housing. While new builds are booming we still have low inventory on resale. Resale tends to be a little less expensive than new build which further complicates the supply issue. Good quality inventory in the resale market is moving so fast that many buyers are missing out on the opportunity to purchase.

For Sale By Owner

Another contributing factor to the pace of the market is homes being sold by owner without an agent. Utah tends to have more for sale by owners than has been my experience in other markets. For sale by owner’s present an unusual phenomenon in the market because of the lack of market knowledge between sellers and buyers in a transaction, especially when sellers are unwilling to work with a buyer represented by a real estate professional.

Generally for sale by owners don’t tend to impact the market significantly. This happens when savvy buyers see for sale by owner properties as potential opportunities for discount prices. A savvy buyer understands that the owner is not paying a professional the typical commission rate and thus expects the seller to discount the property by the same rate. Investors are wonderful negotiators and they commonly target for sale by owners knowing that the seller doesn’t have a third party looking out for his or her best interests. These situations combined with the number of calls for sale by owners get from real estate agents wanting to list the home for them generally is enough to convince the seller that they should have hired a professional in the first place.

However in a market with low inventory where buyers have missed out on homes to multiple offers you get buyers who begin to make decisions off the cuff without the proper research and or help from a real estate professional. Buyer’s begin to make absurd offers well above market value in hopes of getting an offer accepted (sounds a bit like 2009 – 2012 again doesn’t it?). Transactions where real estate agents are involved tend to govern themselves a bit more than these for sale by owners selling to unrepresented buyers for one reason or another.

What Do We Do Now?

And is there anything we can do? The trends are all similar to those we’ve seen in the past. Low inventory, desperate buyers, and increasing prices seem all too familiar. I remember back in 2005 and 2006 waiting for the economy to check. I felt that it couldn’t continue the way it was going and I’m starting to wonder if we’re heading there again.

Honestly, I don’t think we are. I believe that this all boils down to the lack of new build inventory over the past 5 or so years. We aren’t just experiencing low market inventory, we are experiencing a housing shortage. Where new housing came to a screeching halt, population growth in the able to purchase category continued to grow. Any decrease in population growth won’t effect demand in the housing industry for another 15 – 25 years. We are also just now starting to see the first wave of all the people who short sold or went through foreclosure back in 2008 coming back to the market. Where they’ve been renting for the last seven years re-building credit and are now ready to start buying again.

It may be a while before supply catches up with demand!