Yesterday’s buyer is today’s tenant…

A nice short article on whether one should buy or rent a house in US. An earlier post looked at the same decision in NY (Manhattan) housing market. The analysis showed renting makes more sense in Manhattan. THough one wonders how many can buy a home in Manhattan!

Anyways, this short piece looks at the US housing market as a whole. Instead of figuring whether to buy or rent, it says people are looking more at renting these days:

The residential real estate market showed additional signs of improvement in 2012, though the recovery has been quite different for single-family compared with multifamily markets. Between 2009:Q2 and 2012:Q3, the average year-over-year growth rate of house prices was about 0.78 percent, 1 while the average year-over-year growth rate of asking rent for apartments was 5 percent (see the first chart). In the short term, homeownership and renting can be considered two sides of the same coin in the sense that the demand for rental units increases automatically as the homeownership rate declines and vice versa. The homeownership rate declined from 67.4 percent to 65.5 percent during the recovery period and is now closer to the historical average of the 1980s and 1990s. Meanwhile, the rental vacancy rate declined from 10.6 percent to 8.6 percent.

In this adjustment process from home buying to renting, multifamily rental activity has been the bright spot in the housing market: As one realtor in the Eighth Federal Reserve District recently said, “Yesterday’s buyer is today’s tenant.” According to real estate agents, waiting lists for rental units have become common. As the demand for multi-unit structures expands, supply also adjusts, as evidenced by the different growth rates in building permits during the recovery: Between 2009: Q2 and 2012:Q3, multifamily permits increased by roughly 138 percent, while single-family permits increased by only 20 percent.

Why people are not buying:

First, difficulty in obtaining financing has become an important barrier for potential homeowners. Despite historically low mortgage interest rates and a high Housing Affordability Index, many prospective home buyers are being rejected by mortgage providers because of stricter post-crisis underwriting standards and larger required down payments.

Second, potential first-time buyers face competition from investors in the housing market who can pay cash up front. Private investors, such as real estate investment trusts (REITs), public and private pension funds, and venture capitalists, are again very active in the housing market.

Third, although homeownership rates are falling for all age groups, renting has become more appealing to the younger
generations that would have been eager home buyers before the crisis. In part, this shift toward renting is a response to
lifestyle changes as younger, more-educated households highly value their mobility and flexibility and are discouraged by the responsibilities, costs, and especially risks associated with homeownership.

Nice bit..

Well in India we don’t have need for such an analysis. The rule is pretty simple.. If you have the money buy it (as prices will only go up) and if you don’t have the money well rent as there is no choice…


2 Responses to “Yesterday’s buyer is today’s tenant…”

  1. Bipin Dixit Says:

    “Well in India we don’t have need for such an analysis. The rule is pretty simple.. If you have the money buy it (as prices will only go up)”
    there is an implicit assumption that house prices will always go up which used to be case in US market before sub-prime crisis. In India also, we should not make such assumptions.

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