Posted by Jonathan J. Miller -Tuesday, August 16, 2011, 10:52 AM
Trulia released its Rent v. Buy Index today that reflects a more robust rental market, to the point where 74% of the 50 largest markets show it is cheaper to own.
I report and work in the market (NYC) that ranks at the top of the Renting is Cheaper than Buying list and I will be covering the market (Las Vegas in 3Q) that ranks at the top of the Buying is Cheaper than Renting list.
“While recent stock market volatility on top of the slow economic recovery makes homebuyers nervous, it has not destroyed the American dream of homeownership. However, prospective homebuyers, who are ready and qualified to buy, face an uphill battle despite falling home prices and record-low mortgage rates,” said Ken Shuman, Head of Communications at Trulia. “Today, many banks are actually less enthusiastic about approving residential mortgage applications, which has dragged out the home buying process. Until a middle ground on lending practices can be met, many highly-qualified buyers may be forced to be renters by choice for now.”
My key takeaway here is that a strong rental market does not mean a local economy is recovering. Generally the rental market leads the sales market in a recovery because rents are more responsive to changes in unemployment than sales are. The rental market is strong in many markets primarily because credit is so tight.
The American Dream or whatever you want to call it, is a separate matter. Homeownership is currently on the decline because it was artificially high during the credit boom and mortgage underwriting remains unnaturally tight in the aftermath. In my view, falling homeownership has 0% to do with the American Dream thing and 100% to do with the Fed keeping rates artificially low.
Incidentally, Trulia now has no peer in the real estate space when it comes to interactive visualizations since they purchased Movity. I moderated a panel at the Inman Data Summit in SF with Eric Wu, one of the Movity founders and now Head of Geo Products with Trulia. He creates some crazy amazing elegant stuff.
[disclaimer: I'm on Trulia's industry advisory board]