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Renting: Truly a Better Option?

After the last five years, more and more people are hesitant about purchasing a home. We definitely understand their concern. However, is the alternative option actually a better choice? Renting in the current housing market might not make good financial sense. Just this week the Harvard University Joint Center for Housing Studies released a report analyzing conditions in the rental market. The study found:

Rental markets are now tightening, with vacancy rates falling and rents climbing. With little new supply of multifamily units in the pipeline, rents could rise sharply as demand increases. 

This increase in rental costs is already taking place. In their Spring 2011 Housing Report released earlier this week, hotpads.com stated:

…that rental listing prices across the US climbed 7.4 percent while for sale listing prices retreated 8.8 percent since this time last year (April 2010 – April 2011).

Just yesterday, Trulia released its second quarter 2011 Rent vs. Buy Index. In the report, they stated that buying a home has become more affordable than renting in nearly four out of five (78%) major cities.

 “With home prices nearing a double dip and more foreclosures expected to flood the housing market over the next two years, the decision between renting and buying a home across most of the country has clearly moved in favor of buying,” says Ken Shuman, Head of Communications at Trulia. “As we head into the summer buying season, those looking to buy a home should be encouraged by improvements in the market and feel optimistic about their chances of finding an affordable home, much more so than in previous years.”

 “Aspiring homeowners should focus their energies on locking down a low mortgage rate sooner than later. While home prices are unlikely to return to pre-crash levels, today’s low interest rates will likely rise thanks to inflation and spikes in the Fed rates,” notes Shuman. “As the government wind downs its role in the mortgage markets higher mortgage interest rates will be inevitable.”

Bottom Line

Though purchasing a home is not an easy decision after what has taken place in the market over the last five years, realize rental prices are about to soar. You should probably take this into consideration when determining your best housing choice.

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7 replies
  1. Marvin
    Marvin says:

    The #1 factor in rental of houses is the underlying mortgage. Then taxes then maintenance.

    With real estate prices plunging – mortgages are lower – and rents are lower.
    The huge inventory of unsold houses are being rented out which is lowering rents.
    The foreclose, short sales etc are already investments for cash purchasers and are bringing lower rents.

    There are indeed a small handful of markets where foreclosures have pushed house prices so low it is cheaper to buy than rent. But its currently only a hand full and those markets are grim markets.

  2. Marvin
    Marvin says:

    The article was indicating rents are about to spike. I disagree.

    In regards to your point that renting is more costly than buying. At face value that is logical and how it should be. But in my area houses I looked at a year ago are now $50k cheaper and unsold. In that year I have spent $9000 on rent. My rent would not equal the tax on that house and my down payment would have been lost to price deflation.

    If you buy right now you will clearly loose more money than if you buy in the future (in my area). Renting should always cost more than buying. But this is not the usual market.

    My point is, in this market the rent you paid in 2005 will be more than the rent you pay in 2013. Same goes for the home purchase price. As individuals we need to calculate which we will loose more on and which we are more comfortable with. We have to factor in the move to end tax exemptions for real estate sales, eliminating mortgage interest deductions, and soaring taxes in bankrupt states. Those unresolved questions carry a hefty price tag. Those are future question marks.

    Now lets factor in the risks associated with a purchase today – home sale prices have not bottomed yet and are far from it in most areas.. Notables who are not involved with selling real estate, such as Gary Shilling, Robert Shiller and Harry Dent are predicting housing deflation back to 1996 levels or lower and with that comes lower rents (in my opinion). I add that these predictions were made in year 2002 for the above “experts” so I trust their foresight a bit more than those who did not see “it” coming. As you might have guessed I saw it coming and do not own. I rent.

    My opinions are of course colored by the market I am in – Northern New Jersey. I realized it is difficult to make a blanket statement about the USA. But I feel the trends I cited have a solid foundation for the real estate market in general.

  3. Jim Gilbertson
    Jim Gilbertson says:

    I also disagree with the article. Rents seem to be coming down, there is a great number of available homes. Simple supply and demand. Too many homes at low monthly payments. If you shop around, someone will give you that lower monthly rent payment in the same area. If not, thier property may sit empty, like the forclosure next door.

  4. Real Estate Agent
    Real Estate Agent says:

    I think it’s less about whether rents will rise and more about interest rates. A certain number of people will always need to rent – for mobility, lifestyle, lack of downpayment, etc. And there will always be a certain percentage of renters who are ready to move on and buy. I don’t see those proportions shifting too dramatically. But interest rates, and the whole structure of the mortgage industry, WILL change once the government backs out.

  5. JB
    JB says:

    The real key is what fits your lifestyle. There is nothing glamorous about owning a home. It is a pain in the butt, costs a lot and you have to pay a ton of money each month to live in that box. The interesting part about renting is how much house you can get in great areas for much less than a huge mortgage.


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