Good News For Housing Recovery - Cost Of Owning Versus Renting Back To Historical Norm

Mortgage and Lending with Guaranteed Rate (NMLS ID #2611) NMLS ID #107432

The cost of owning a home versus renting one is returning to historical levelsOne popular housing theory is  --  before a bona fide housing recovery can begin -- the cost of owning a home versus renting one must return to historical levels.

If that belief is true, a national return to rising home prices may be in store for 2009. 

Falling home prices and falling mortgage rates have dropped the relative, after-tax cost of owning a home to 125% of the cost of renting a home.

This is the exact 18-year historical average and not since 2001 has the gap been this small.

As reported by the Wall Street Journal, though, the study has some flaws.  For example, the data doesn't account for ongoing home maintenance costs, nor does it consider real estate tax bills and insurance policies. 

But, combining a relatively low cost of ownership with the government's $8,000 tax credit for first-time home buyers is likely to convert long-time renters into never-before homeowners.

This is thought to be a key element of the housing recovery.

In many markets (but not all), home prices are expected to move even lower through 2009.  Provided mortgage rates stay low, the cost gap between owning and renting will shrink even more.

(Image courtesy: Wall Street Journal

Comments (3)

Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

This is great information that I will definately share. Thank heavens for first time buyers!

Feb 25, 2009 01:55 AM
Li Read
Sea to Sky Premier Properties (Salt Spring) - Salt Spring Island, BC
Caring expertise...knowledge for you!

Very interesting.     There does seem to be a sense of movement "out there"...not the flat nothing of Fall, 2008.     Recovery?     Mmmm.....

Feb 25, 2009 02:56 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Scott - Very good info for the consumer to have and I will definitely be using it to motivate my renters.  However, I've been "doing the math" for my first time buyers for years, and typically, once they see the numbers for themselves, that usually motivates most.  Keep in mind, that when home prices were rising during the boom times, so were rents.

Feb 25, 2009 06:20 AM