Cheaper to buy?
There are really two real estate markets for consumers: the buying market and the renting market. They don’t necessarily move in the same direction. What has been happening to prices in each market, and what does that imply about the relative benefits of buying a home or renting? N.C. State University economist Mike Walden responds.
“You’re absolutely right to say that those are two different markets –the buying market and the renting market. And to answer your question directly, they’ve been going in opposite directions. For example, most people realize that over the last couple of years home prices have gone down. In fact, in just the last two years they’re down an average of 4 percent. However, rents have been going up in the last few years. Rents have been going up by 2 percent.
“Now the reason for this is on the buying side there’s an oversupply of homes. Of course, with foreclosures and people under water in their mortgages, that’s put downward pressure on home prices. And at the same time, folks who need a place to live often it’s harder to get mortgages to buy homes, so they’re going into the renting market. So, there’s actually good demand for rental units. And that’s really coming at the expense of the home buying sector.
“Bottom line here … is that if you are in a situation where you want to buy a house, number one; number two, if you have good credit … and you can get a loan, this is a great time to buy a house. Prices are going down. Sellers I think are willing to negotiate.
“On the other hand if you’re in the rental market, it’s not a bad market, but recognize you may not get the kind of deal there in terms of your rent that you may get if you buy.”
Category: Economic Perspective