The buy vs. rent debate, which has pointed
definitively toward buying for the past decade
or so, appears to be tilting toward renting.
Reversing the forces that had made home
ownership the better economic choice (home
prices depressed by the fallout from the
recession and record low mortgage rates), prices
have been rising faster than incomes, shrinking
inventories have been accelerating the price
gains, and mortgage rates, also now on an upward
curve, are exacerbating the affordability
Home ownership costs have increased by 14
percent over the past year, while rents have
increased an average of 4 percent nationally,
according to data compiled by Realtor.com. Only
41 percent of U.S. residents live in a county in
which the median-income is large enough to
purchase the median-priced home, this analysis
“Even setting aside big upfront expenses like a
down payment, rising month-by-month costs are
likely keeping many people from purchasing,”
Danielle Hale, Realtor.com’s chief economist,
Buying a home was less expensive than renting
one in 44 percent of U.S. counties a year ago,
according to the Realtor.com analysis. Last
month, costs favored buying over renting in only
35 percent, as the buy vs. rent equation has
shifted from buy to rent in 289 counties.
A separate study by Florida Atlantic University
and Florida International University has
concluded that renting a home is now a better
investment than buying one in many major
metropolitan areas, the first time that has been
true in more than eight years.
A “Problematic” Trend
Because home ownership has traditionally been a
major source of household wealth creation for
Americans, Hale noted, this trend “could become
problematic” if it continues for too long.
The housing market is cyclical, and like all
cycles, this one will shift again at some point.
But there was no sign of an imminent shift in
the July housing data, as a strong economy,
growing at its fastest rate in four years,
couldn’t keep the housing market on tract.
Sales of both new and existing homes declined
in July, disappointing analysts who had expected
rebounds in both segments.
Existing home sales shrank for the fourth
consecutive month, falling 1.5 percent below the
year-ago level. The annualized sales rate of
5.34 million units was the lowest it’s been in
more than two years. Condominiums and co-ops,
which have been outperforming detached homes,
followed the same downward trend, ending up 3.3
percent off the July 2017 pace.
Pending sales, an indicator of future trends,
weren’t encouraging. This National Association
of Realtors (NAR) index fell almost 1 percent
below the June reading, posting its seventh
consecutive year-over-year decline.
"Too many would-be buyers are either being
priced out or are deciding to postpone their
search until more homes in their price range
come onto the market," Lawrence Yun, the NAR’s
chief economist, said in a statement. .
New home sales beat the year-ago rate by almost
13 percent, but that’s damning with faint
praise, as the year-ago sales total was anemic,
and the trend for this year has been heading
steadily downward. The July sales rate was the
lowest it has been in almost a year.
“For the second month in a row, both new and
existing home sales have come in below
expectations, adding yet another data point to
the mounting body of evidence pointing to a
struggling housing market,” Aaron Terrazas,
senior economist at Zillow, told reporters.
Inventory Problem Persists
Scant inventories are the major problem, as they
have been for the past year, the NAR’s Yun
insists. He blames the paucity of new
construction for the shortage of listings that
is driving prices higher and sapping
affordability even as incomes are beginning to
grow. “Existing supply is still not at a healthy
level, and new home construction is not keeping
up to meet demand,” Yun complains.
New construction is clearly what the housing
doctors are ordering as an antidote for
inventory woes, but that prescription hasn’t
been filled. Construction starts, which sank in
June, increased by less than 1 percent in July,
as builders continue to struggle with rising
materials costs and a shortage of skilled labor.
Permits increased by 1.5 percent, continuing a
positive trend, but at a rate that analysts
agree is too slow to make a dent in the
“We expected a much bigger rebound in starts
after June’s surprise plunge – which was revised
down – so this is disappointing,” Ian
Shepherdson, chief economist for Pantheon Macro,
Although permits for single-family homes
increased sharply (offsetting a steep decline in
multifamily), “the bigger picture is less
encouraging,” Shepherdson noted. The trend in
permits is flat, at best,” he added, “and the
downward trend in the NAHB index of homebuilder
sentiment and activity suggests that no
near-term recovery is likely.”
His prediction – more of the same. “Housing is
the sole weak spot in the economy right now, and
that’s probably not going to change.”