Renting May Be Wiser Than Buying

Sept. 30, 2004 -- Although owning a home is the American dream, in light of the current environment in certain metropolitan areas, individuals looking to buy may want to consider renting for a bit longer.

Why? Because while the housing market has reached all-time highs, the rental market is incredibly depressed in many markets creating lots of values for consumers — housing prices have risen 25 percent faster than rents since the mid-1990s. With the national vacancy rate for rental properties is at a record high of 10.5 percent, many landlords are offering incredible deals to entice potential tenants — such as a free month's rent — in those same areas where home prices have soared.

Why Should You Consider Home ‘Rentership’?

• Record high existing home sales: Record low interest rates over the past few years have created an unprecedented housing boom. In 2003, Americans purchased 7.2 million new and existing homes, an increase of 10 percent over 2002, and this year sales are likely to add up to 7.9 million homes by year-end suggesting prices might be near a peak.

• Soaring home prices: The prices of homes have skyrocketed in many markets, including Washington, Boston, New York, Miami, Los Angeles and San Diego. In fact, on average, median home prices nationwide have risen 47 percent since 1995.

• Large price gaps: The price gap between the most expensive housing regions (mostly metropolitan areas on the coasts) and the rest of the country is larger than ever before, in part because of a shortage of land available for home-building in these high cost markets. According to analysis by Economy.com, the typical home price in the 10 metropolitan areas with the highest home prices — San Diego, Orange County, Calif., West Palm Beach-Boca Raton, Los Angeles-Long Beach, Fort Lauderdale, Miami, Washington metro area, New York, San Francisco and Boston — has risen to 230 percent of the national median from 155 percent five years ago. Again, indicative of a peak.