Renting’s edge at historic low vs. buying

September 19th, 2012,  

 OC Register

By numerous measures, buying a home looks very financially affordable vs. renting a residence. One slice of my Big Orange Index — a compilation of three dozen benchmarks for the local business climate — shows renting’s edge at its lowest since at least 1989.

Source: RealFacts and DataQuick; click to enlarge!

In the second quarter, The Big O found Orange County’s effective rent ran at $1,493 a month, using RealFacts data. Meanwhile, buyers got a house payment of $2,000 a month in the same time, tracking DataQuick estimates.

By this math, renting saved an Orange Countian — in theory — 25% in the last quarter over a homebuyer’s monthly house payment. That’s smaller savings than 29% in the previous quarter or 35% in the year-ago period. It’s also historically thin: In the last five years, rent’s savings has averaged 40% — and 43% since 1989. In fact, it’s never been lower, according to the Big O database that dates to 1989 for this measure. (Psst! Rent’s biggest savings edge? 60% in the first quarter of 2007 — smack at the peak of the homebuying boom!)

Dropping home plus and cheap mortgages are making buying cheaper — for those who can afford a mortgage — as landlords up the cost of their apartments as complexes fill up. The Big O’s rent measure is up 5% in a year and up 1% in three years. Compare that to the corresponding purchase cost — The Big O’s house payment benchmark is down 9% in a year and 16% in three years.

Certainly this is one reason why the homebuying pace and prices are rising. Orange County’s median price for existing, single-family homes was up by nearly 12% from August a year ago, the California Association of Realtors says. Sales rose 23 percent over last August.

And Orange County isn’t alone with buying looking favorable to renting.  Online property tracker Trulia says buying a home is more affordable than renting in all 100 U.S. largest metro areas it tracks.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s