Not so long ago, the housing market ballooned so high that monthly mortgage prices were much higher than monthly rental prices. This disparity hasn’t been seen since the early 80s. Typically, as mortgage rates rise, rent prices also rise along a normal rate of disparity.
These rates allow buyers or renters to decide whether they can afford the monthly mortgage rate, or would be better off with just renting a home. Usually, the mortgage rate will be higher than the rental rate. However, after the housing market crashed, mortgage rates fell so sharply that they were actually lower than the average rental rate.
With so many calamities in the housing marketing, especially the high rate of foreclosures, many potential buyers opted to pay higher rents. The scary prospect of trying to own a home, alongside the risk of foreclosure, forced people to become or stay renters.
However, the trend seems to be reversing, now that the housing market is making a recovery. Instead of monthly rental pricing exceeding monthly mortgage costs, mortgage prices are once again on top. Unfortunately, in some markets, this still is not a strong enough incentive to convince renters to buy a home, even in Florida where owning a home is 50% or more affordable than renting.
Part of the problem is that potential homeowners see the rise in mortgage prices as an indicator that affording a home is no longer within reach. Another problem is that many people are still not convinced that the troubles of the housing market are not over, and that buying a home is still too risky.
Most experts agree, however, that numbers do favor buying, and that the disparity between monthly rental prices and monthly mortgage prices are only about $45. Historically, this difference in cost is still relatively small, but it may not be enough to convince potential homeowners to get back into the buying market.
It may be some time before the benefits of paying a mortgage, in order to own a home, regain their foot holding in the minds of people who, for the time being, see renting as a better and safer bet. A bet, that doesn’t come with the chance of being pulled underwater.
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I am the CEO of EquiAlt: real estate based alternative investment firm with activities in equity, debt and private equity. Since 2008, EquiAlt's management has demonstrated a high level of competence in hundreds of distressed asset transactions, recapitalized companies while lending on landmark Las Vegas projects.
We understand that there are several strategies and goals in the area of real estate investing. Based on our experience, we offer education and offerings that are truly investment grade. Available products for investors range from totally passive to the traditional active.
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