Beyond the Numbers: To Rent or To Buy

Two charts today…

First, we see the Rental Vacancy Rate has made a straight-line drop since 2009, decreasing by 10% in just three years.

Next, we see the Bloomberg Apartment REIT index has gone up 3-fold in the past three years. When an index like this goes up, it generally indicates renters are paying more to rent.

 

The shift in where we live has reignited the rent vs. buy debate. Trulia, the property-tracking company, just released a comparison study showing that it’s now cheaper to buy a house than to rent in 98 out of 100 metro areas they considered.

The Price-to-Rent Ratio generally compares what it costs to buy a house versus what it costs to rent. High ratios suggest renting is a better option, while low ratios point to home purchase as the better move.

Home prices are 30% or more off their peak and displaced families are flocking to rental properties. So, Trulia’s conclusions are fairly obvious. But the price-to-rent ratio accounts only for the financial factors related to the rent vs. buy decision, while ignoring other important factors.

People with lingering credit problems can’t even consider buying as an option… they must rent.

Even for those who do have a choice, renting still has its advantages. Renters have the flexibility to move – either across town for cheaper rent or to another state for a job opportunity. Renting also shifts responsibility and liability away from the inhabitant and onto the landlord. It seems there’s a “freedom premium” in rental rates that many are willing to pay.

“Rational actors” will continue to weigh the benefits (and risks) of buying versus renting, but they’ll look at all factors involved – not just the dollars and cents of it.

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Categories: Economy

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.