As the pendulum swings
According to the North County Times (NCT), home ownership is now cheaper than renting in the San Diego area1, and while county-supplied and Realtor data is what the media outlet uses to analyze renting versus owning in one city’s surrounding areas, the story of San Diego is being repeated in many major metropolitan areas across the nation.
The most recent CoreLogic data2 and various other economic indicators point to month after month of falling home prices which is bad news for already underwater homeowners, but good news for home buyers that are actually able to get qualified in the era of extremely tightened lending conditions. Many of these buyers are ready to snatch up foreclosures in a strange game of house swapping where one homeowner loses their home and in turn buys the home another is losing.
Add to falling home prices the historically low interest rates3, hovering around 4.0 percent, the NCT reports that “the combination of factors has created a house market in North San Diego and Southwest Riverside county in which homeowners are getting a better deal than renters, at least after they’ve paid their down payment.”
“I don’t think this has ever happened before,” G.U. Krueger, a principal economist for HousingEcon.com told NCT. “It’s a function of the huge housing price collapse which has left a lot of people in the lurch.”
“This is crazy.”
Carlsbad real estate agent Tyson Lund said, “This is crazy.” NCT notes “a host of caveats not included in the calculation,” like inclusion of maintenance costs to keep a home in good condition, and the analysis does not amortize the down payment on the house.
CalculatedRiskBlog.com said4, “These comparisons aren’t perfect, however the price-to-rent ratio (that doesn’t include interest rates) is back to normal too, so stories like this aren’t a surprise.”
Nathan Moeder, Principal at the London Group told NCT, “If rates were back to 5.5 percent or 6 percent, then the mortgages become more expensive than rents. I would not call 4 percent a normalized housing market. Today, people are able to afford more home because of the interest rates.”
While this tale is specifically about San Diego, it is not unique, and while the stigma of renting is shed in a shattered economy and an entire Millennial generation cares less about the white picket fence, the pendulum swing between renting and owning is favoring homeownership in many parts of America, despite rental vacancy rates decreasing nationwide.