BluefoxToday blog : February 2009

Homeownership again making financial sense over renting

The recent real estate boom created quite a few imbalances in several marketplaces. One of them was the owning vs. renting question. When property values kept soaring to new heights, many would-be buyers simply couldn't qualify for a mortgage any more or just didn't want to pay for it even if they had the means. Renting had become so much less damaging to the budget that people chose to do that instead.

The red-hot housing market reached its peak around 2006 when after-tax home loan payments could go as high as 66% more than what rents were then, as was reported by Green Street Advisors, a real estate consultant in California. For many it was hard to justify dealing with such a large gap, so they became renters. A totally understandable decision.

But, as it so happened, the real estate market tanked badly and threw prices into a free-fall. That has steadily brought down mortgage payments and at the same time gradually narrowed the wide discrepancy with rents. Green Street Advisors say that by the end of 2008 in the 50 largest metropolitan areas the gap had closed to about 24%, on average. In Las Vegas and Los Angeles, for instance, where prices have been butchered, the ratio actually is under an 18-year average.

For a while it looked like high home values would shrink homeownership across large sections of the country, but in a stunning reversal it's again becoming achievable and in fact making financial sense to many consumers. In select areas, Southern Nevada could be one of them, mortgage payments might now actually be less than rents for comparable space.  Market forces, in essence, are organically creating demand and that's what it now sorely needs



Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst - syndicated mortgage, housing and property management blog
My cell: 702-499-1006

Comment balloon 14 commentsEsko Kiuru • February 26 2009 07:13PM
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