Archives
August 2018
July 2018uly 2018
June 2018une 2018pril 201
May 2018

 
 
 

 

Buy vs. Rent Equation Is

Tilting Toward Renting Again

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 pressures.  

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 shows.

“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, told CNBC.  

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.


Priced Out

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 inventory shortage.

“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, told MarketWatch. 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.”


Home
Copyright 2018, Members Mortgage   Privacy/Legal