Renting at a Premium in Northern Virginia

Posted by Carolyn A. Capalbo on Sunday, December 12th, 2010 at 8:14pm.

It costs more to rent a home in many Northern Virginia communities than it does to purchase that same home.  This reversal in trend sets an interesting precedence.  The current market has seen a sharp decline in buyer activity over the past 60 days.  Buyer confidence is down as fears surrounding a potential increase in foreclosure inventory and title concerns prevent many would be buyers from acting now.  In addition, many folks have been through foreclosure and short sales and are now part of the rental/tenant market place.  This is driving demand for rental units up.  Many would be buyers are waiting to see what happens after the first of the year and foreclosure moratoriums are lifted, they are opting to rent instead of committing to a purchase at this time.  The threat of rising interest rates has not sparked buyer urgency.  Rental inventory and purchase inventory are both low.  The rental rate on a one car garage townhouse in Piedmont or Piedmont South is around $1700 per month.  The same unit would sell for an average of $250,000.  The PITI on this unit at 4.25% FHA would be roughly (after 3.5% down payment) $1500 per month.  Excluding mortgage interest tax deduction, there is a savings of $200 per month to purchase over leasing a home.  Add in the mortgage tax deduction and the savings for buying a home now are dramatic.  Why would a person be willing to pay more to rent versus purchase a home?  Many would be buyers are opting to rent in many scenarios since they are concerned that the market will continue to decline.  These would be buyers are willing to pay a premium to rent a home instead of risking the loss of principal on their primary residence.  The next group to watch will be the long term real estate investor.  They will now have the luxury of purchasing a home and having positive cash flow from day one.  This market is once again on edge, there is pent up demand, and artificially delayed supply.  Once the current market constraints are lifted, we should see a surge in buying activity. 

Carolyn Capalbo, Best Northern VA REALTORCarolyn Capalbo,
Northern Virginia REALTOR®


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2 Responses to "Renting at a Premium in Northern Virginia"

Sparks wrote: Caroline,

The same thing is happening over in Northern NV...

"It costs more to rent a home in many Northern Virginia communities than it does to purchase that same home."

I wish (i know you feel the same way) that many more people can buy really nice starter homes if only they had a better credit (FHA loans) for a really affordable down payment and closing costs..

Also, we've also experienced s decline in buyer activity, perhaps when they put a stop on the $8,000 tax credit?

Common sense is not common practice...=(

Thanks for this post Caroline...


Posted on Monday, December 13th, 2010 at 9:14pm.

Carolyn Capalbo wrote: Thanks for your input Joe. We saw a sharp decline in buyer activity in July just after the end of the tax credit here too; however, buyer activity picked up again in September. The affidavit issues and foreclosure moratorium seems to have been a second source of buyer insecurity in our area. Carolyn

Posted on Monday, December 13th, 2010 at 9:52pm.

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