Why buy a house when you can rent?This is the mentality of many Americans. Unfortunately, this isn’t helping home prices, which continue look for a bottom.
Low mortgage rates and federal assistance are not getting Americans to buy homes in a material way either, writes economist Gary Shilling in a piece for Bloomberg.
And he doesn’t think things will improve anytime soon. From his piece:
The collapse in housing and the 33 per cent plunge in house prices since 2006 are favouring renting over homeownership. This trend will dominate the housing market for the next four or five years, and put additional pressure on a weak economy.
While the home price-to-rent ratio continues to come down, they are still above the long-run average, which also doesn’t bode well for prices.
Despite the collapse in prices, homeownership is still expensive relative to rentals, even as apartment rental rates rise and vacancies decline. Moody’s Analytics Inc. calculates a ratio of home prices to yearly rents at 11.3, down from the bubble peak of 18.5, but still higher than the 1989-2003 average of 10. You’d expect house prices to be lower than average in relation to rents, not higher, now that prices are falling.
Earlier this year, Shilling said he expected home prices to fall another 20 per cent before bottoming.
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