Declining housing prices combined with (artificially) low mortgage interests rates are combining to bring the costs of owning more in line with renting, according to the Wall Street Journal (h/t: Alison Kemper):
The relative cost of owning versus renting is swinging back in favor of homeownership in some U.S. markets, buoyed by several quarters of sharp declines in home prices. At the height of the housing boom, as home prices surged, demand for rentals started to rise as the gap between owning and renting widened significantly. Even after the housing market soured, apartment demand grew as former homeowners became renters, allowing landlords to push healthy rent increases. Now, after two years of rapid home-price depreciation, the relationship between the cost of rental payments versus after-tax mortgage payments is tilting toward ownership in a number of metropolitan areas.
True, when you factor in massive government incentives for homeownership, and that is only in certain markets. But this kind of thinking misses the bigger issue of the long run. In addition to the issue of month-to-month housing affordability, homeownership carries with it a second, longer-run cost – the cost of exit. In a mobile society, people need to be able to sell their homes. Take the example of homeowners in say Pittsburgh or Detroit or just about any market these days. They got a great deal on a wonderful, affordable home, but then their employment dries up. They’re offered a job say in Seattle or Washington, D.C. and need to move. But they’re locked into a house they can’t sell. If they were renters they could easily up and move.
In today’s economy, many people are better off paying a considerable premium to rent, if they think they might need to move for career or family or lifestyle reasons.
And I continue to believe that we need to put in place a new housing system which can and should make renting easier, more flexible, and even more affordable.