Home Ownership is Still the Best Option, According to Lenders
Home ownership is still the best option in the market areas of Owensboro, Bowling Green, Huntingburg, Evansville, Newburgh, and Louisville . Affordability constraints have emerged as one of the biggest challenges to the continued housing recovery since the 2008 crash. However, based on the breakeven rate, it will be a long time before renting becomes the more sensible and attractive option.
Today, mortgage rates are still at an all-time low – 4.00% for a 30-year conventional loan. Even if mortgage rates were to rise by a considerate amount, they are not likely to impact home buying nationally to any significant degree. That is the conclusion that many have reached when looking at the so-called mortgage breakeven rate, which refers to the rate at which mortgages would need to be at to make rent the more sensible option.
On a national level, the mortgage breakeven rate is generally believed to be around 8% or higher. This means that, all things being equal, the cost of buying would be the same as the cost of renting when mortgage finance rates are 8%. Of course, the breakeven rate varies across regions and is said to be much lower – perhaps 5% to 6% – in places like San Francisco and new York City.
While mortgage rates are widely expected to rise as policymakers roll back post-crisis stimulus programs, they remain less than half of the breakeven rate. The average commitment rate on a 30-year fixed-rate mortgage averaged 3.90% in the week ended August 10, according to Freddie Mac. The 15-year fixed rate was 3.18% and the 5-year adjustable rate was 3.14%. Rates peaked in December, when the 30-year fixed rate climbed to 4.32%. They have been in general decline ever since, partly in response to monetary policy expectations.
Of course, the breakeven rate doesn’t tell the whole story. It doesn’t consider the myriad of other affordability challenges that have made homeownership less attractive than rent, especially for first-time buyers. Stagnant wages, surging home values and supply-side constraints have all made homeownership out of reach for many Americans.
However, there is no denying that an increased demand for housing is on the rise, especially with low inventory numbers. Unemployment is the lowest it has been in 16 years and job creation remains steady. As a result, home prices are up in 64 consecutive months when measured in year-over-year terms. For now, the housing market appears to be on even keel as there are more positive factors boosting it than dragging it down.