02 May, 2012

As home rents head higher, owning regains its appeal

Rising rents, coupled with interest rates near record-lows, are boosting demand for homes at entry-level prices.

Making sense of the story
  • Increased buying activity from investors and second-home purchases may be factors behind the recent pickup in home sales, but real estate agents say they are fielding more calls from anxious tenants complaining about rising rents.
  • Average apartment rents rose by 2.7 percent last year, while the national vacancy rate dropped below 5 percent for the first time since 2001, according to a quarterly survey released  by REIS Inc., a real estate research firm.
  • The largest rent increases came in San Francisco and San Jose, Calif., which saw increases of 5.9 percent and 4.9 percent, respectively. Such increases are one reason why industry analysts believe 2012 will be the first year since 2005 when the share of apartment renters that moves out to buy a house increases from the previous year.
  • Historically, the cost to rent an apartment has been about 10 percent lower than the after-tax cost of owning a home. That rental discount began to fall in 2010 and disappeared entirely last year, according to analysts at Deutsche Bank who track housing costs. By the end of 2011, the bank’s research found that the cost to rent an apartment was about 15 percent higher than the cost to own a home.
  • It isn’t always easy for home buyers to make it to the closing table though. Lending and appraisal standards remain tight, keeping many would-be buyers out of the market. And aspiring buyers are competing with savvy investors who have turned buying and reselling foreclosed homes into a business.

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