Washington, D.C. Rent VS Buy-Calculated Decisions
As the U.S. economy struggles to regain momentum, homebuyers are beleaguered between renting and buying a home. While home prices have plunged nearly a third since 2006 and homeownership rates have fallen to all-time lows, there is new evidence emerging that now, could be an optimal time to jump into the housing market.
There are two key measures that shed light into the comparison between owning a home and renting. First, for the first time in nearly five years, the nation’s ratio of housing prices to yearly rents is restored to its pre-bubble average. This is a clear signal that renting in many of the nation’s metropolitan areas has become more expensive than financing the purchase of similar properties. Secondly, adding cheap debt financing to the mix, the affordability of owning a home is at its highest level since 1970.
For those that invest in stocks, an areas price to rent ratio is comparable to a stock`s PE or price to earnings ratio. This variable measures the cost of an asset to the predicted return that asset will generate over a given period. Typically, the lower the PE, the greater the anticipated return. For housing, the lower the ratio, the more affordable it is to buy a home compared to renting similar properties. The national average is now at 11.3% down from 18.5 in 2007.
For most, mortgage rates are the key factor for determining whether or not they will purchase or rent. With mortgage rates hovering around 4%, qualified buyers can take advantage of cheap money. In August, the housing affordability index hit 183.7%.
These promising signs are also catching the eyes of investors as well. Yields on income producing properties are increasing as many find rental homes attractive options despite the risk of depreciation. For these two categories of homeowners, now could be the time to pull the trigger.
For more information on these ratios pertaining to your local area, feel free to email me at Tom@DCinsiders.com or call me directly at 202-386-1441
Tags: Tom Gretz |Washington DC Housing Market | Rent VS Buy | Housing Affordability | Buying a home in Washington, D.C. | DC Insiders Real Estate
