It seems to me that the housing market crisis is in a bit of a tug of war. On one side, we have the industry analysts saying that the market is getting better. On the other side, however, tugging just as hard, are those industry analysts that are certain the market will get much worse before it gets better. The back and forth banter leaves us real estate professionals to decide for ourselves what is going to happen next, and convey that information to our clients.
Today, I’m feeling good about the housing market. With the Dow up in positive territory (first time this week) and a new client to add to my portfolio, I’m feeling positively bullish on the topic. Adding to my jubilation, I read that the median selling prices for new and existing homes combined equal 2.9 times the median household incomes, nationwide. Those numbers were a throw-back to the mid-80’s, when the housing market was booming. Today, those numbers plus extremely low interest rates should only help to fuel the housing market come-back…right?
Here’s another indication of a housing market come-back…The rental market is beginning to show signs of weakness. We all know that when the housing market is hot, the rental market is weak because people are getting wise to buying a home rather than throwing money out the window each month in rent without any economic return. Over the last year, however, the rental market has been extremely strong.
As an owner of several rental properties, I have enjoyed the ride up in the rental market over the last year. But over the last month, I have had two rental properties sit without a tenant. I’ve placed ads, lowered the rent, held open houses, and even hired the help of a rental agency to manage the property rental listing. To my dismay, however, I am finding little interest in my rental units, and what interest I can find, it is usually by people looking for a short term lease because they are in the market to purchase a home (can you believe the nerve of some people?)!
Jim Jubak, MSN’s Money Senior Markets Editor, recently pointed out in an interview that rental prices and the money it costs to own a home are coming back into alignment. During the days of the hot real estate market, the cost of homeownership skyrocketed as home prices and values inflated rapidly. But as home prices come down, the cost analysis of the rental market versus the home ownership market eventually equal each other. At some point, if home prices continue to plummet, the cost of homeownership then becomes much more appealing than the more expensive and less economically-sensed rental market.
As pointed out by Jubak, over the last 18 years, the cost to purchase a home averaged 26% more than the cost to rent (the main difference factors the gain of equity into the equation). As the housing market heated up, however, that cost skyrocketed to 66%, where at that point, many people decided renting was their best option. Today, however, the cost differential is only 24%, which is starting to make better sense to a lot of people currently renting their homes and looking to take advantage of some of the opportunities that may be out there in their housing market.