Rent vs Buy

Above the blue line favors buying, below renting and the horizontal line is average since 1987. Rental series from the CPI, home prices from S&P/Case-Shiller Home Price Indices

Above the blue line favors buying, below renting and the horizontal line is average since 1987. Rental series from the CPI, home prices from S&P/Case-Shiller Home Price Indices

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2 Comments

  1. Richard says:

    In looking at the chart, and specifically the horizontal ‘average line’, I’m left to consider the effects of going further back, to perhaps 1984, or 82, or 80. I see by the chart that about the 1989 and a quarter area and moving back (88-87-86- etc) that it was more favorable to purch vs. lease.

    This all said, would a chart based on todays rents vs. todays truly achievable mortgage rate/monthly payment be more accurate. (By ‘truly achievable’ I’m referring to where the average middle class family/person would fall with a mid range credit score as well the ability to obtain a mortgage.) If a mortgage is still to difficult for the ‘average person’ to obtain, or if the ‘average’ just are not willing, as yet, to purchase, then those would be much more telling signs, I’d think, as to rental value. After all, the chart above indicated the best time to rent was actually when all of us were foolish enough (and excited enough) to buy.

    rlb

    • David Blitzer says:

      The chart compares the rise and fall of rents to the rise and fall of home prices. It follows an anlaysis published in the Economic Letter from the San Francisco Fed (Number 2004-27, 10/1/04); the same analysis is used by the Calculated Risk Blog and others. This approach focuses on price movements and does not include consumer confidence, availability of mortgages or price expectations — all of which are factors in the decision between buying and renting a home. Other current data suggest that mortgages are not easy to obtain, certainly not as easy as during the boom years. Further, some potential buyers may look at the last few years of falling prices and decide to rent while prices keep dropping. In short, the chart compares prices trends and other things figure in the decision to buy a house.

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