Renting's edge vs. buying near historic low - Lansner on Real Estate

Renting?s edge vs. buying near historic low

June 7th, 2011, 6:44 am ? 92 Comments ? posted by Jon Lansner

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Renting?s financial edge over homeownership remains near historic lows, at least by one measurement.

When comparing local rents (using RealFacts statistics for large apartment complexes) and estimates of mortgage payments for Orange County homebuyers (from DataQuick) we find that rents ran at 39% less than house payments in the first quarter.

This ratio has been flat for three consecutive quarters and has been under 40% since the second quarter of 2009. Since 1988, rents have averaged 44 percent of mortgage payments. Rent?s financial edge hit a low ? our data goes to 1988 ? of 36% in the second half of 2009.

But comparing a $2,295 a month mortgage payment to a $1,406 monthly rent check ? the first quarter results ? ?isn?t the entire story of whether one should buy a home.

Yes, this is simple math ? for example, owners have other expenses ? from taxes to maintenance ? plus tax breaks on interest. And?a house shopper would also have to come up with a downpayment to buy. And recent history tells you that ownership is no guarantee of keeping one?s investment in a home.

Yet this ratio tells the tale of local housing.?Price drops on homes ? and low interest rates ? have helped narrow the rent-vs.-buy gap.

Homebuyers? typical mortgage payments have fallen 35% since they peaked in the first quarter of 2007. Rents have softened, too, as landlords cut their prices as the recession forced some tenants to double up in various ways. Plus, the weak economy nudged more homes into the rental market, creating more competition. By our math, effective rents ? what landlords get, asking rates times occupancy ? are off 7 percent from their peak in the last quarter of 2008.

The narrow gap between renting and buying suggests that the housing market could have support for a rebound if other conditions improve. That?s a big caveat. A wobbly job market does not amp up consumer confidence needed to buy a home. Volatile home pricing has scared off some shoppers and banks have made it difficult for anyone but the highest-quality borrower to qualify for a mortgage.

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Source: http://lansner.ocregister.com/2011/06/07/rentings-edge-vs-buying-near-historic-low/112399/

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