Owning a home is generally viewed as a better deal than renting,
but in cities with exploding home prices and relatively flat rents, that may
not be the case anymore.
Trulia, it now makes more financial sense to rent than buy in the nation’s two
most expensive markets — San Jose and San Francisco. The balance is also
shifting in favor of renting in a few other high-cost cities, such as Honolulu,
Seattle and Portland, Oregon, according to a recent study by the San Francisco-based
Trulia said the overall U.S. market still solidly provides
buyers with a financial benefit. But in the five years since Trulia began
estimating the financial advantages of buying versus renting, this is the first
time renters have come out ahead in any of the major metros it tracks.
In San Jose and
San Francisco, renting was 12 percent and 6 percent cheaper, respectively, for
the consumer than buying a home, Trulia said. San Francisco and San Jose are
outliers, though. The National Association of Realtors, for example, has
estimated that for a person earning $100,000, just 2.5 percent of the June
listings in San Jose and 9 percent in San Francisco were affordable. Trulia
reported that buyers still have a significant advantage over renters in places
estimated that on a nationwide basis, buying a home was 26 percent cheaper for
a consumer than renting as of last month. This is the narrowest gap in five
years, and has come down from 41 percent in 2016, according to Trulia. The key
factor in closing the gap is that house prices have increased steeply along
with mortgage rates, while rents are remaining relatively stable. In San Jose,
for example, home prices have jumped up 29 percent in a year, while rents were
unchanged. Home values rose 14 percent in San Francisco, and rents fell by 3
a lot of factors," Trulia's Senior Economist Cheryl Young said during an
interview on Thursday. "Obviously, mortgage rates are going up. That is
going to tip the scales a little bit toward renting, but also home value
appreciation is far outpacing rent growth right now. So, rents are pretty much
cooling out. As they cool down and home prices track up, that margin between
buying and renting starts closing."
said the balance could tip in favor of renters in other cities as
are markets that are always close to that margin, and things that could tip
it," she said. "If mortgage rates were to rise and we still see rents
flattening and even decreasing as they have been in some places relative to
rising home prices, we may see some markets tip."
calculations include forecasts on future rent and price appreciation, and also
estimates on how much a renter can potentially earn by investing in other
vehicles. Trulia assumes that the buyer will stay in the home for seven years,
put 20 percent down on a 30-year fixed mortgage.
analysts told Scotsman Guide News that gauging the advantages of buying versus
renting can be a tricky exercise.
market doesn’t necessarily favor either one right now, as the choice of whether
to be an owner or the renter is not a purely economic decision, but often
includes the lifestyle decisions of an individual,” said Mark Fleming, chief
economist for First American Corp.
noted that in some of these high-cost cities, renters are in better position
now to buy than when home prices were near their low point seven years ago.
prices are on the rise across the country, by historical standards they are
still within reach in many markets,” Fleming said. “In fact, when you account
for the historically low interest rate environment and rising incomes, consumer
house-buying power is up nearly 24 percent since 2011,” he added.
deputy chief economist for Freddie Mac, said that rising home values tend to
give the buyer a financial edge over the renter, who is gaining no equity.
we look back historically, homeowners have done pretty well relative to
renters,” Kiefer said. “It doesn’t mean that it is going to be true in the
future, but if you look at where our forecast is for the overall economy, we
are still forecasting home prices to continue to rise at a pretty healthy pace
over the next couple of years.”
Kiefer said in
a few high-cost cities with high property taxes, homeowners will be hurt by new
tax changes that eliminated or reduced homeownership perks in the federal tax
code. This may give renters some advantage. He said the tax changes so far
don’t seem to have reduced homebuyer demand significantly, though.
the high-cost, high-tax markets, places like parts of California, New Jersey,
Illinois, the cost of homeownership is going to be a little bit
negative,” Kiefer said. “But if we look at actual data on what has happened in
those markets, it is hard to see a discernible impact in terms of slower
overall activity that you could attribute to the tax law,” he said. Kiefer said
rising prices and higher rates were likely making homebuying less appealing,
been less sold on the financial benefits of owning a home, according to recent
Fannie Mae surveys. In January 2010, for example, 76 percent of surveyed
renters saw an advantage in buying. That number has fallen to 68 percent as of
the end of June.
of the financial benefit of owning has come down a little bit,” said Mark
Palim, deputy chief economist for Fannie Mae. “That probably reflects that home
prices are up substantially.”
Palim said that
renters are still expressing a strong desire in buying homes for non-financial,
quality-of-life factors. He said the improved economy and a surge in household
formation has kept the buyer demand up in spite of rising home prices and
really moved into the market in a big way, and they are closing the gap
relative to other generations,” Palim said. “People have far more financial
means to afford a home and go out and buy a home, and that has translated into
pretty brisk demand.”
Article author : Victor Whitman
Article source name : https://www.scotsmanguide.com/Ne
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