There is a new buzz word in real estate: Over Renter. This term is used to describe individuals or families that make $150,000 or more annually that choose to rent a home or apartment in lieu of purchasing a traditional home. These high-income renters certainly can purchase a home but elect to pay top dollar for renting smaller, more conveniently located living spaces … and they are happy about it.
According to a recent study by RentCafe, in the Fort Worth market alone, the number of high-income renters has increased 77 percent since 2014.
As Fort Worth continues to increase in population, the number of renters and buyers should continue to remain at a high level. The question remains, “is this a good thing?”
Why Uptick in Over Renters?
There are many theories why there are more and more people are choosing to spend their money renting in the market versus in previous years. One suggestion is that consumers are still scared of a market downturn or housing crash that left many homeowners upside down on their homes and losing them to foreclosure. Another thought is that people are deciding to live in smaller spaces and giving up ownership of homes in order to live in the “hip-and-happening” areas of the city. A third idea is that homeowners are realizing they have a good amount of equity in their homes and are selling, but are not able to find a comparable or better dwelling to purchase in the area they desire to reside.
Low Inventory is a Problem
Imagine buying a home in an area such as Arlington Heights, Crestwood, or Ryan Place in early 2005. The economy was strong, interest rates were low, and homes in those areas hovered around $100,000 to $250,000 to purchase.
A decade later the economy continues to be strong, interest rates are still low (for now), but the average price of homes in those aforementioned areas now extends from the $300,000 to the $500,000 range. Same homes, same locations, but local homeowners are realizing a tremendous amount of equity in their homes, and they want to sell.
The problem now is that home owners, sitting on a pile of cash after selling their homes, are having a hard time finding a practical area or home in which to purchase. They have nowhere to go. Mortgage rates still ridiculously low but the inventory is just not there.
New areas such as Parks of Aledo, Morningstar, and the Walsh Ranch will absorb many of those Over Renters, but not everyone wants to move west into a more suburban feel. Many will continue to be satisfied living closer to work and play in the city and renting while they enjoy those amenities.
Change of Lifestyle
Many young professionals don’t want to deal with upkeep of home ownership and willing to accept the tradeoff of higher monthly payment and not establishing any equity for being in walk-able area with others in their age range and the “cool factor.”
Millennials who make enough money to purchase a home often don’t want the commitment of home ownership. They want the community feel of apartment living as well as the conveniences that so many apartment and condominiums offer — low maintenance, urban lifestyle, proximity to local restaurants, shops and places of entertainment.
Baby Boomers are also responsible for increases in the rental market. With children gone (hopefully) from the home, many are now Empty Nesters who don’t have need for larger homes. They are tired of yard maintenance and upkeep on a larger dwelling. They are ready for a change of lifestyle. They want to travel more, congregate with their friends in public, and want to experience what life in a walk-able, urban setting has to offer.
Is this a Fad or a Trend?
Maybe the sudden growth in Over Renters in Fort Worth is both a trend and a fad. Whatever the reason, it’s happening and it doesn’t appear to slow down anytime soon. Just about everywhere you go in Fort Worth there is a new apartment project under construction. Whether in the West 7th Corridor, River District, Oak Hurst, Near Southside, Waterside, or Edwards Ranch, the number of available apartments for rent will continue to increase … and prices will continue to skyrocket.
Ironically, many real estate sales professionals will tell you they have seen an increase in Baby Boomers who have tried the “renting world” for a few years and have grown tired of aspects of that lifestyle and look to re-enter home-ownership. People get tired of their rent increasing, having to walk long distances from the garage to the apartment, or don’t want to have others living on all sides of them. For some, the “cool factor” eventually wears off.
Inventory for homes to purchase has to become more attractive. Greed is a factor. Growth is a factor. HGTV is a factor —everyone thinks white counters and cabinets and gray paint on walls should command upwards of $200 per square foot for a home in older area built in the 1940s. At some point home prices need to slow down and become more realistic, but will they? Not until buyers stop paying the prices being demanded.
Rent vs. Buy
Recently, an online article in Bloomberg stated that until mortgage rates triple from current rate always better to own versus rent. But what if there is nothing that the buyer can afford or wants to buy?
Writer Patrick Clark highlights, “In 58 of 100 metros, including such diverse cities as Chicago, Houston, Long Island (N.Y.), and Nashville, mortgage rates would have to top 10 percent — a level they haven’t reached before renting became a better deal. In 26 of 100 metros, including Detroit and Dallas, home prices would have to double to make renting look like a good financial move.”
Time will only tell if the Over Renter segment of the population will remain in play for high rental rates or if the housing inventory will improve and increase such that renters are persuaded to purchase a property. Maybe rental apartments and townhomes will be turned into condominium complexes for purchase. Maybe Fort Worth will continue to have a high number of Over Renters and still continue to set records for home sales on an annual basis.
In the meantime, don’t look for prices of rental homes or apartments to drop, nor for prices of homes to purchase in the more sought-after areas of the city to dip anytime soon. Everyone is going to ride this wave as long as they can. Over Renters, buyers, sellers, developers, builders, leasing agencies, speculators … everyone eat drink and be merry … for tomorrow … well, who knows?
That’s a Special Report of Tarrant County Tuesday for now Dirty Readers. Please feel free to add comments or likes or let me know if you have any ideas for fun blog topics in the future.
Special thanks to Amalia Otet of Rent Café for facts and figures on the Fort Worth rental market.
Seth Fowler is a licensed real estate sales professional with Williams Trew Real Estate in Fort Worth. Statements and opinions are his own. Seth has been involved in the home sales and real estate business in DFW since 2004. He and his family have lived in the Fort Worth area for over 14 years. Seth also loves bow ties. You can reach Seth at 817.980.6636 or firstname.lastname@example.org.