Rent or Buy, Housing Market Ahead
For the last 3 years, buying a home has beat renting. As recently as September 20th, 2013, Forbes Staff writer Morgan Brennan had this to say about trends at the time:
“Despite rising home prices and mortgage rates, it’s still cheaper to buy a home than to rent one in America’s largest cities. A new report from San Francisco, Calif.-based real estate site Trulia finds that, nationally, it’s 35% less expensive to own a home. Even in notoriously pricey, renter-heavy cities like San Francisco and New York, it remains 9% and 21% cheaper, respectively.
“While it’s hard to believe after the recent spike in mortgage rates, it’s still more than one-third cheaper to buy a home than to rent,” says Jed Kolko, chief economist of Trulia. “Recent mortgage rate and home price increases have made buying significantly more expensive than last year, but not enough to tip the math in favor of renting. This is because rates remain well below historical norms, and prices are still slightly undervalued, too.”” 
But is this still the case?
Not according to Bloomberg “Chart of the Day” writer David Wilson based on Deutsche Bank findings:
“Home buying has become more costly than renting in the U.S. and the price gap will widen to 1990s levels during the next two years, according to an analysis by Deutsche Bank AG.
The CHART OF THE DAY shows the rent-buy ratio, or the average rent nationwide as a percentage of mortgage payments after accounting for tax benefits. Deutsche Bank put together the ratio from data compiled by the National Association of Realtors and the REIS information service.
Last quarter, the calculation favored renting for the first time in three years. Rent dropped to 98.4 percent of homeowners’after-tax mortgage cost from the second quarter’s 100.5 percent.” 
Bloomberg’s Chart (Click for original source)
What does this mean for the economy?
In an article earlier this week, titled “Economic Recovery Speculation”, I mentioned that the housing market has seen a recent resurgence, specifically for home builders.
However, according to Economist Robert J. Shiller’s September 28th piece in The New York Times:
“HOME prices have been rising rapidly, so much so that there is talk that we are entering another national bubble.
..According to the S.& P./Case-Shiller Composite-10 Home Price Index… home prices in the United States were up 18.4 percent in real, inflation-corrected terms in the 16 months that ended in July. During the housing bubble that preceded the 2008 financial crisis, the largest 16-month increase wasn’t much bigger: 22.7 percent, for the period ended in July 2004…Is it possible that we are lapsing into… a bubble mentality — a self-reinforcing cycle of popular belief that prices can only go higher?
… Under the auspices of the Yale School of Management, we’ve been sending out annual questionnaires to random samples of recent home buyers in four United States cities: Boston, Milwaukee, Los Angeles and San Francisco…
…The results suggest that though we are not in a bubble now, there are troubling signs that we may be heading toward one. ” 
There’s so much useful information in that article regarding a trend to another future housing bubble, that I implore you to check it out.
The message from all this: although the housing market currently may be up for builders and owners, prepare yourself for potential shifting winds in rent prices – decreasing the amount of potential home buyers – and possible over valuation and speculation on housing prices yet again in the near future.
Image: Housing Market Gamble by Images of Money http://www.flickr.com/photos/59937401@N07/5857848242/
- A Link Between the Housing and Rental Markets? (kwelia.com)
- Housing-bubble concerns in Denver likely are overblown for now (denverpost.com)
- Trulia: 2014 Will Be The Year Of Repeat Home Buyer (huffingtonpost.com)
- Home Rental or Home Ownership: Which is Better During Retirement? (community.ally.com)
- Trulia’s Housing Predictions: How 2014 Will be Different (forbes.com)
- Buying a house now more expensive than renting in the U.S. (business.financialpost.com)
- “Housing Bubble 2.0” – Same As “Housing Bubble 1.0”; Just Different Actors (forum.prisonplanet.com)
- 10 Big Cities Where Buying A Home Is Cheaper Than Renting (forbes.com)
- Mortgages: Predictions for the New Year (nytimes.com)
- 5 Predictions for housing in 2014 (15dayclosing.wordpress.com)