Newly published data indicates that Seattle rental prices are expected to increase in 2015 – and for anyone currently renting or searching for a rental in Seattle, these numbers might not come as much of a surprise.¹
Seattle rents have risen 21.5% in the past five years; with a reported increase of 8.6% in 2014 alone – and new data from Zillow forecasts that rental prices should continue to rise in 2015.
Due to the rapid increase in rent prices, on average, Seattle renters are now paying more than 30% of their monthly income on housing – which is a particularly discouraging number, considering that means over 30% of a Seattle renter’s monthly income is being spent on housing expenses, but without the benefit of building any equity.
In contrast, buying a home has become much more affordable in recent years, particularly when it comes to mortgage costs: on average, homeowners pay about 15% of their monthly income to mortgage costs, including interest. And homeowners can thank the continued trend of low interest rates for the reduced mortgage costs – interest rates are still near all-time lows, with rates right around 3.66% at the end of January 2015.
A Trip Back to the 1980’s: Put on your Wayfarers & Pay High Interest Rates
For many Millennials who grew up in the 1980’s – the low interest rates of today are in stark contrast to what their parents had to pay in the 80’s to own a home. Due to the high interest rates during the 1980’s, the cost of renting was far less expensive than the cost of homeownership. In the 80’s, Seattle renters spent about 23% of their monthly income on rent. Whereas homeowners paid over 40% of their monthly income on mortgage costs, due to the astoundingly high interest rates – which hovered between 10%-15% throughout much of the 1980’s.
Seeing these figures, reminded me of a recent conversation I was having with my Mom about the current real estate market – and the low interest rates that Seattle homebuyers are trying to use to their advantage. During our conversation, my Mom recalled what a difficult & long process it was for my parents to sell our family home in the early 1980’s – as interest rates were sky high and few buyers were able to afford to the cost of home ownership.
Putting into perspective the high interest rates of the 80’s and the cost of homeownership back then – buying a home today seems like a screaming deal in comparison. And with Seattle rental rates expected to continue to rise in 2015, buying a home seems more practical than ever.
So What’s a Renter (Buyer?) to Do?
The current lack of available inventory in Seattle’s real estate market, combined with increasing demand from interested buyers, can make finding the right house, in a location you like, and at a price you can afford no easy feat. And the competition can be discouraging to many first-time buyers or people who’d like to buy – but just don’t think they can.
However, several loan programs were introduced at the beginning of this year that allow for lower down payments – which can help make buying a home a more feasible goal for some potential buyers. And while bidding wars are still occurring in the most popular neighborhoods at certain price points, buying a home in the current market is not an impossible feat. Depending on the location and price of the home you are interested in – it might take a lot of diligent searching and several offers before you can get the right home under contract. Yet, when taking into account today’s interest rates and the forecast of continued rent increases – if you are in a position to buy and can afford it – it might well be worth the effort.
If you are serious about buying, start by talking to a lender and getting pre-approved for a home loan – so you can start your home search confident about your finances and what you can afford. Secondly, enlist the help of a real estate professional that you trust to help you with your search and purchase. As much as you might know about the market and all the research you can do on your own on the internet – at the end of the day, having a skilled broker who will go to bat for you as a buyer can make a world of difference in getting you the house you want – particularly in Seattle's competitive market.
¹ The Puget Sound Business Journal articles, which provide the statistics discussed in this blog entry can be found here:
Zillow: Seattle Rents Jump 21 percent in 5 Years, Could Spark Home-Buying Binge
Seattle Renters Paid 8.6% More This Year; Higher Rents Expected in 2015