The classic back-and-forth between renting and buying is not expected to cease anytime soon. While rising rents will ease in 2016, they will still be unaffordable, adding to the list of complications preventing renters from getting into homes.
A Zillow report found that rents will flatten in 2016, but will still be unaffordable in most markets. This presents yet another challenge for the aspiring homebuyer on top of rising rates, tightening credit, and flat incomes.
According to Zillow's Rent Forecast, rent appreciation is expected to flatten over the next 12 months and will slow to an annual rate of 1.1 percent by December 2016. Nationally, the index is forecast to be $1,396 by the end of the year, compared to $1,381 in December 2015.
"Hot markets are still going to be hot in 2016, but rents won't rise as quickly as they have been," said Zillow Chief Economist Dr. Svenja Gudell. "The slowdown in rental appreciation will provide some relief for renters who've been seeing their rents rise dramatically every single year for the past few years. However, the situation remains tough on the ground: rents are still rising and renters are struggling to keep up."
In housing markets where home values are constantly rising, first-time buyers often struggle with coming up with a down payment and end up renting versus buying a home.
Most renters are putting about 30 percent of their monthly income toward their rental payment, which makes saving for a 10 or 20 percent down payment difficult, a November 2015 Zillow report showed.
"In general, paying a mortgage is more affordable than renting, and has been for some time. Unfortunately, many current renters aren't able to realize the savings that come with homeownership because as home values and rents keep rising, it's getting increasingly difficult to clear the down payment hurdle," said Dr. Svenja Gudell, Zillow's Chief Economist.
For many years, buying a home has been considered to be an obvious choice when compared to renting a home, but this is not always the case. For some, it may make more sense to purchase a home versus renting a home and vice versa.
A new report from Smartasset did not completely shut renting out of the game, especially if the rental market is better suited for consumers' needs. Even though home prices continue to rise, purchasing a home is still a better choice across the U.S. compared to renting.
"If you were spending 30 percent of your income on housing anyway, might as well spend that hard-earned dough on something that would retain its value for you in the future," Smartasset said. "Renting, in contrast, was like lighting your money on fire and tossing it in the trash. The rent versus buy decision was a straightforward one."
The report continued, "That all changed in 2007, when the housing bubble that had been silently growing suddenly went pop. A house, it turned out, could lose value—and, as some real-life cases demonstrated, could do so in spectacular fashion. Those with the misfortune to buy at the peak of the market in 2006 lost thousands or even millions of dollars overnight. Mortgages went underwater. A foreclosure crisis ensued. Meanwhile, the renters of the world were doing relatively well."