Following on the heels of news articles at the end of March talking about how owning a home is now cheaper than renting in a number of major markets, (see TAG blog from March 30th, 2012), here are two more related articles. The first, from the Wall Street Journal, tells how the apartment rental market has taken off in recent years and how, as of 2011, the historic 10% lower cost of renting vs. owning a home has completely turned around. By the end of 2011 the average cost of renting an apartment was 15% higher then the after tax cost of home ownership!
The second article relates the rising trend of pending home sales according to the National Association of REALTORS®. More proof that the housing market is beginning to turn around. Time may be running out for holdout buyers to grab their dream home at historically low prices.
As Home Rents Head Higher, Owning Regains Its Appeal
Climbing rents for apartments are combining with a continued decline in home prices to push once-reluctant home buyers into finally taking the plunge, say economists and real-estate agents, helping what appears to be a good start to the housing industry’s all-important spring selling season.
WSJ’s Dawn Wotapka examines an increase in rent costs nationwide and how it has resulted in would-be homebuyers being encouraged to take the plunge. Photo/David Zalubowski, file
Although increased buying activity from investors and second-home purchasers are also factors behind the recent pickup in home sales, real-estate agents say they are fielding more calls from anxious tenants complaining about rising rents.
“The rental market has been incredibly hot,” said Ronald Peltier, chief executive of HomeServices of America Inc., which owns real-estate brokerages in 21 states. He says rising rents, coupled with slumping home prices and interest rates near record lows, are boosting demand for homes at entry-level prices.
Average apartment rents rose by 2.7% last year while the national vacancy rate dropped below 5% for the first time since 2001, according to a quarterly survey to be released Wednesday by Reis Inc., REIS +1.53% a real-estate research firm.
The broad and sustained growth of the apartment market contrasts sharply with an uneven and tentative housing recovery. During the first quarter, average apartment rent s rose and vacancy rates fell in all 82 metropolitan areas tracked by Reis, when compared with a year ago.
The largest rent increases came in San Francisco and San Jose, Calif., which saw increases of 5.9% and 4.9%, respectively. Even boom-to-bust Las Vega s, which has struggled with falling rents in previous quarters, saw average rent rise 1.8% from a year earlier.
Such increases are one reason why analysts at Zelman & Associates believe 2012 will be the first year since 2005 when the share of apartment renters that moves out to buy a house increases from the previous year. “The equation of renting versus owning is becoming much more favorable for owning,” said Ivy Zelman, the firm’s chief executive.
Unless the economy worsens, there is little sign that rent growth will slow until hundreds of thousands of new apartment units currently under construction hit the market over the next few years.
Nishu Sood, a housing analyst with Deutsche Bank DBK.XE -0.56% who tracks housing costs, says that, historically, the cost to rent an apartment has been about 10% lower than the after-tax cost of owning a home. That rental discount began to fall in 2010 and disappeared entirely last year. By the end of 2011, Mr. Sood’s research found that the cost to rent an apartment was about 15% higher than the cost to own a home. Conditions are “overwhelming in the favor of buying now. It is unequivocal,” he said.
In San Jose and the Silicon Valley, where home prices have tumbled 36% from the mid-2007 peak, home affordability has more than doubled in the last five years, Mr. Sood said. Affordability has also improved in Long Island and northern New Jersey, where during the boom, renting was half as expensive as buying. Now, it is almost equal.
To be sure, not all markets have seen the same development. In Orange County, Calif., and New York City, where home prices are extremely high, renting is still cheaper. But even in New York, real-estate agents say sales of small studio and one-bedroom apartments are brisk because renters don’t want to pay such high amounts to rent.
“The entry-level market is back,” said Dottie Herman, president of Prudential Douglas Elliman.
Jennifer Regan and her husband went under contract to buy a three-bedroom home in Martinez, Calif., last month. With a 4.25% rate on a 30-year fixed mortgage, their monthly payments, including taxes and insurance, will be around $600 less than what it costs to rent a comparable house. “I couldn’t believe it had gotten so expensive” to rent, said Ms. Regan, 36 years old, who is moving before her oldest son starts school this fall.
It isn’t always easy for individual home buyers to make it to the closing table, however. Lending and appraisal standards remain tight, keeping many would-be buyers out of the market. And aspiring buyers are competing with savvy investors who have turned buying and reselling foreclosed homes into a business. Last week, the National Association of Realtors trade group said the number of homes purchased by investors rose 65% during 2011 to 1.2 million, representing 27% of all sales.
And for some renters, the housing crisis has shaken their desire to become owners. “If I was going to buy, I feel like I would be just in the same problem that other homeowners are having with the market,” said Laurel Slutsky, 24, who just renewed the one-year lease on her Chicago two-bedroom.
“Right now, all my friends and I are hopping around neighborhoods, and I don’t see the benefit in buying and staying in one place.”
—Josh Barbanel contributed to this article.
Housing Bright Spot: Pending Home Sales Rise, Market on Uptrend
Pending home sales are on an upward trend, which has been uneven but meaningful since reaching a cyclical low last April, and are well above a year ago, according to the National Association of REALTORS®.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, rose 2.0 percent to 97.0 in January from a downwardly revised 95.1 in December and is 8.0 percent higher than January 2011 when it was 89.8. The data reflects contracts but not closings.
The January index is the highest since April 2010 when it reached 111.3 as buyers were rushing to take advantage of the home buyer tax credit.
Lawrence Yun, NAR chief economist, says this is a hopeful indicator going into the spring home-buying season. “Given more favorable housing market conditions, the trend in contract activity implies we are on track for a more meaningful sales gain this year. With a sustained downtrend in unsold inventory, this would bring about a broad price stabilization or even modest national price growth, of course with local variations.”
The PHSI in the Northeast rose 7.6 percent to 78.2 in January and is 9.8 percent above a year ago. In the Midwest the index declined 3.8 percent to 88.1 but is 10.8 percent higher than January 2011. Pending home sales in the South increased 7.7 percent to an index of 109.1 in January and is 10.5 percent above a year ago. In the West the index fell 4.4 percent in January to 101.9 but is 0.7 percent above January 2011.
“Movements in the index have been uneven, reflecting the headwinds of tight credit, but job gains, high affordability and rising rents are hopefully pushing the market into what appears to be a sustained housing recovery,” Yun says. “If and when credit availability conditions return to normal, home sales will likely get a 15 percent boost, speed up the home-price recovery, and thereby significantly reduce the number of homeowners who are underwater.”
For more information, visit www.realtor.org .
If you’ve been waiting to until the last minute to buy your dream home or trying to wait out the housing slump to sell your home – Wait No Longer!! Give Tom or Mary Ann Anderson a call and see what experienced real estate agents can do for you!
Tom Anderson Mary Ann Anderson
404.277.9581 404.281.2118
tom@TAGAtlanta.com maarealtor@bellsouth.net
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