As more Americans rent, buying a home has become cheaper

Wednesday, April 17th, 2013 By

buying cheaper than renting

U.S. home ownership is falling. As more people rent, buying a home has become cheaper than renting in most major U.S. cities. Image: CC Sugar Pond/Flickr

U.S. home ownership rates have fallen back to 1998 levels as more Americans are choosing to rent rather than buy a home. The drop in home ownership and rise in rental activity has made buying a home cheaper than renting in most major U.S. This unusual scenario could mean that buying a home now will bring greater long-term returns than most other investments.

U.S. home ownership rates falling

More people are renting instead of buying in the U.S. housing market, according to the U.S. Census. The U.S. home ownership rate was about 66.5 percent as 2010 ended, down from 67.2 percent at the end of 2009. The substantial drop in U.S. home ownership in the fourth quarter — 30,000 households — was dwarfed by the 1.1 million increase in renters. It has been widely known that falling home prices are keeping people from buying homes. Unemployment and shaky job security are another reason, as well as strict credit standards for mortgage loans. But Amy Hoak at MarketWatch suggests that people may be choosing to rent simply because it fits their lifestyle, instead of buying a home seeking a return on investment.

Buying cheaper than renting in most major U.S. cities

Ironically, the trend toward renting has made it less expensive to buy a home in 72 percent of the biggest cities in the U.S. The housing crisis has flooded the rental market with millions of homeowners. According to RealtyTrac Inc, a record 2.87 million homes were in default, repossession or at auction in 2010. People forced from their homes contributed to sending apartment vacancies in the U.S. to a two-year low. By comparing median rent on two-bedroom rentals with the median home sale price and ownership costs, Trulia Inc. determined that renting costs less than buying in only four major U.S. cities: New York, Seattle, Kansas City, Mo., and San Francisco.

Now is the time for renters to consider buying

Renters who have been waiting to buy a home may want to act now, according to Jim Woods at Investorplace. The inventory of homes for sale has been steadily going down, and prices may be on the verge of bottoming out. Mortgage rates are starting to rise and will continue as the economy improves. Plus, inflation will eventually return to normal, and investing in real estate has historically been one of the best hedges against inflation.

Sources

MarketWatch

Bloomberg

Investorplace.com

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