Sunday, April 08, 2012

Housing Story: Owning vs. Renting

by Bill McBride on 4/08/2012 09:09:00 AM

From Eric Wolff at the North County Times: 'This is crazy': Home ownership cheaper than renting

Monthly payments on a house are now cheaper than monthly rents on a similar house in most of North San Diego and Southwest Riverside counties, according to an analysis of county-supplied and Realtor data by the North County Times.

... prices for houses plummeted and interest rates fell below 4 percent, a 40-year low. The combination of factors has created a house market in North San Diego and Southwest Riverside county in which homeowners are getting a better deal than renters, at least after they've paid their down payment.

"I don't think this has ever happened before," said G.U. Krueger, a principal economist for HousingEcon.com. "It's a function of the huge housing price collapse which has left a lot of people in the lurch."

Or, as Carlsbad real estate agent Tyson Lund put it: "This is crazy."
...
There are, of course, a host of caveats not included in the calculation. The analysis does not amortize the down payment on the house, nor does it include the maintenance costs that homeowners accrue to keep their homes in good repair, though many economists argue the mortgage interest tax deduction offered by the federal government balances those expenses. Still, the calculation depends on a homebuyer having enough money to make a down payment, and sufficient credit to get a loan. In 2011, banks raised the bar on those to whom they'd lend, making it difficult for many people to get mortgages. ... "If rates were back to 5.5 percent or 6 percent, then the mortgages become more expensive than rents. I would not call 4 percent a normalized housing market," [Nathan Moeder, a principal at The London Group] said in an email. "Today, people are able to afford more home because of the interest rates."
These comparisons aren't perfect, however the price-to-rent ratio (that doesn't include interest rates) is back to normal too, so stories like this aren't a surprise.

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