Thinking of getting out of that apartment and buying a home of your own this spring or summer? The market may be in your favor, particularly if you’re looking in one of the 80% of U.S. cities where buying is more affordable than renting. In many places, rents are rising while home prices are falling. According to the Rent vs. Buy Index released by Trulia, homeownership is actually more affordable than renting in 4 out of 5 major U.S. cities – up from 72% of cities from last quarter.
Ken Shuman, head of communications at Trulia, says would-be house hunters should feel optimistic. More so now than in previous years, the dream of homeownership is within reach for many Americans. Shuman points to home prices nearing a double-dip and an inevitable new crop of foreclosures entering the market, and confirms that “the decision between renting and buying a home across most of the country has clearly moved in favor of buying.
It makes sense that the most affordable housing market conditions can be found in those cities hardest hit by recent foreclosures. Think Miami, Las Vegas, Phoenix. At the same time, rental markets have become increasingly affordable in New York, L.A. and Seattle. Since last quarter, some of the biggest leaps in favor of homeownership occurred in Omaha, San Jose, and Detroit.
There’s hearty data supporting home buying this season, but experts emphasize that above all, the real estate market is local. At New York-based Miller Samuel Real Estate Appraisers, president Jonathan Miller advises that “Locally, it may be cheaper to buy than rent.” Still, he cautions that it doesn’t necessarily speak to your investment. In other words, Miller suggests that house hunters should be asking themselves, “How many years before I can ‘get above water’ or see a return?”
Many aspiring homeowners might buy sooner if it didn’t mean they had to hold onto the same home for so many years. “When the housing market was booming, homeowners were virtually guaranteed to make money, or at least break even on their home sales – regardless of the period they owned their home,” says Miller. But with home prices appreciating much more slowly, many homeowners are forced to tie themselves to their housing investments much longer than in previous years. “The future upside is much farther down the road,” cautions Miller. “You’re looking at five, maybe 10 years out of this sort of rocky bottom.”
At the Joint Center for Housing Studies at Harvard University, managing director Eric Belsky recognizes some definite erosion in attitudes towards home ownership. Until Americans regain confidence in the nation’s economy, this widespread feeling may persist. “There’s two parts to the home buying decision: the will, and the way.”
Some buyers thought they’d found their “way” with 2010’s first-time home buyer tax credit. The credit caused a spike in home prices and housing market activity. Belsky sees the spike as demonstrative of pent-up demand, but the current housing market doesn’t provide strong enough incentives for renters to move on up to buying. While some dreamers and window shoppers have the “will”, Belsky feels the “way” to home ownership may be blocked by the underwriting standards being applied to loans. “Even if some of the slack in the market tightens, the rebound won’t be as strong as it would otherwise have been,” says Belsky, “primarily because many would-be home buyers won’t be able to qualify for a loan with favorable terms.”
However, this summer’s housing market will undoubtedly be affected by a slowly improving employment picture and encouraging economic data. According to the National Association of Realtors’ pending homes sales index, more Americans signed contracts to buy homes in March – up 5.1%. This could be an indication that house hunters are acting on available bargains. “People aren’t running out to buy that dream house yet, because they’re not that confident,” says Heather Fernandez, vice president of marketing at Trulia. “But we’re starting to see consumer confidence shift. People are more interested in home buying. Rental rates are still high, and therefore, just based on the numbers, increasingly home ownership is becoming more affordable across the U.S.”