Despite Rent-vs-Buy Ratios, Renting is Growing

Recent media coverage of several rent-vs-buy ratios show that the tide is turning in many urban areas toward a more favorable climate for buying than renting. Historically low interest rates and prices down over 40% nationally makes the ratios turn toward buying vs renting.

One report states that 29 major urban areas are now showing that buying is a better choice than renting. Moody’s reports that it’s still cheaper to rent in the majority of urban areas. Since the financial crisis began, more than 3 million households have moved to renting. One report estimates that another 3 million or more are expected to do so by 2015. All told, nearly 38 million households are renters.

An example situation is an energy consultant who rents an $1100/month apartment with his wife in Alexandria, VA. He can afford to buy, and his parents are pressuring him to do so. His response is that “the housing market is insane.” He would like something larger, but is clear that his plans do not include buying in his foreseeable future.

While home prices are down, and interest rates are at historically low levels, few people can afford to buy a home. Even if their credit scores are high enough, the higher down payments required now are keeping many out of the market. First & last month’s rent and a security deposit is far less money than a 20% down payment and closing costs.

Robert Shiller, one of the creators of the Case-Shiller Home Price Index, calls this “… a renter’s nation. The home is no longer an investment, it’s a burden.”