Chart of the day: Let’s go buy a house!

By Felix Salmon
May 8, 2012

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Many thanks to Ben Walsh for putting this chart together for me. The source is this data at the Census bureau, inspired by page two of the first-quarter 2012 Census bureau report on rental vacancies and homeownership.

The first thing to look at here is the blue line, which shows that the median asking rent for vacant rent units tends to rise pretty steadily. It doesn’t spike during housing bubbles, and it doesn’t plunge when those bubbles burst. Which is one reason why if you can, it’s always a good idea, when you’re buying a home, to take a look at what rents are like in the area. That’ll help you work out whether prices are too high.

David Leonhardt performed this exercise two years ago, and came to the conclusion that in some parts of the country, including South Florida, Phoenix and Las Vegas, buy-to-rent ratios were making houses look attractive again. I wasn’t completely convinced, but over the past two years, prices have continued to fall, while rents have continued to rise — sometimes painfully so.

In the chart, the red line shows the mortgage payment you’d have to make if you took out a standard 30-year mortgage for the median asking sales price for vacant sale units. In reality, your mortgage payment would be lower, since this doesn’t take into account any downpayment. But in any case, thanks to ludicrously low mortgage rates below 9% 4%, that number is now lower than the median national rental price. This is the first time that’s happened since 1988, and probably for quite some time before that, too.

Remember that houses for sale tend to be bigger and more valuable than houses for rent, too — which only goes to underscore how good a deal buying is versus renting right now.

Of course, not all markets work this way: around New York, there are lots of places where it’s still a lot cheaper to rent than to buy. But if rental prices are a good gauge of the value of housing — and I think they are — then I think we might finally have reached the point at which most Americans are getting good value when they buy a house.

To put it another way, we can now take advantage of long-term fixed financing (thanks, Uncle Sam!) to own a home for a monthly payment less than the cost of renting. Which doesn’t mean that prices won’t fall further, of course. But at least there’s a good chance that if you do buy a house right now, with a fixed-rate mortgage, then if push comes to shove you’ll probably be able to rent it out and more than cover your mortgage payments.

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