Renting is More Expensive Than Owning
The home rental market has officially been turned on it’s head.
Since the housing recession began, many home owners were forced to sell in distress, meaning either a short sale or foreclosure. Consequently, their credit was affected negatively. So it’s no surprise that rental rates are climbing since many previous homeowners are unable to qualify for home loans. But the rental market has reached such an expensive level that in many parts of the country, it is considerably cheaper to buy a home than rent.
Nationwide, home prices declined 0.7% in the last 12 months, whereas rental rates have increased 5%. The two fastest growing rental markets, Sarasota FL and Miami FL, increased 12.9% and 12.1% respectively. The national vacancy rate recently fell to 4.9%, the lowest level since 2001 (as measured by Trulia). All this means upward pressure on rental prices now and in the near future.
As for owning a home, several factors are keeping costs low. Interest rates continue to reside in “record low” territory. The supply of homes available for sale is still above the historical average. Home prices, though stabilizing, are still relatively cheap. The National Association of Realtors Home Affordability Index, a measure that relates home prices to family income and mortgage rates. An index reading of 100 is defined as the point where household income is just enough to qualify for the purchase of an existing home with 25% of income going towards mortgage payments. The index currently stands at 206 (an all-time high), indicating that the median family has roughly twice the income needed to buy a median priced home.
Finally, theres Tulia’s Rent vs. Buy Index. This index summarizes everything mentioned to this point and more in one number. Their most recent release for 2011 shows that home ownership is cheaper than renting in 80% of US cities. This is yet another reason that the housing market may be set to rebound in a big way.