Back in June 2007, the New York Times published a very nifty chart that broke down--by geographical area--whether it was more economical to rent or own a home. That chart followed an April 2007 New York Times column that agreed renting was a better option in some pockets of the country: "Over the next five years, which is about the average amount of time recent buyers have remained in their homes, prices in the Los Angeles area would have to rise more than 5 percent a year for a typical buyer there to do better than a renter. The same is true in Phoenix, Las Vegas, the New York region, Northern California and South Florida." Fast forward and today's Wall Street Journal tells a different story:
"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...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." According to the WSJ, in Los Angeles mortgage payments average 30 percent more than rent payments, compared to mortgage payments averaging 60 percent more than rent payments between 1990-2008, and if mortgage rates drop again, that percentage figure could fall even further. On the flipside, it's harder to get lending for a home, while there's also the "psychological barrier" renters face when looking to buy (ie believing the home price will continue to drop). Meanwhile, if you can't afford the buying option, maybe you can look around for one of those rent-to-own options, which are "become increasingly common for developers in areas where home foreclosures are high, like Nevada, California and Florida," according to the New York Times.
· Renters Lose Edge on Homeowners [WSJ]