By David Pendered
A recent study shows housing in metro Atlanta is much cheaper to buy than rent, just as a new report suggests the national housing market may be poised for an upswing.
Here’s the breakdown on rent vs. buy as provided in a Dec. 9 report from zillow.com regarding metro Atlanta:
- A renter can expect to spend 24.1 percent of monthly income on rent;
- A home buyer can expect to spend 15.2 percent of monthly income on mortgage.
- Median household income in the third quarter of 2014 was $59,927, and the home value index for the same period was $151,900.
The working theory among some economists is that renters will become buyers when they recognize the cost savings and other benefits associated with home ownership.
These trends resonate across the broader economy because of the tremendous role of residential construction. Past recessions have ended as residential development created jobs that range across sectors including design and construction, home décor and provisions, landscaping, and government services.
However, the working theory does not seem to encompass other factors that may prevent renters from buying a home. The range of factors includes access to a mortgage; student debt; other forms of debt; job uncertainty; and appetite for buying a home so soon after the collapse of housing prices.
This is where the Jan. 29 report from the Commerce Department comes into play.
The Commerce Department released estimates that show home ownership is at its lowest level since the third quarter of 1994.
The estimates show that 63.9 percent of households in the U.S. owned their own home in the fourth quarter of 2014. A year earlier, the proportion of owners stood at 65.1 percent.
There is a silver lining that impacts the interpretation of home ownership.
The Commerce Department’s report also shows the nation has 1.66 million new households, compared to a year earlier. This figure suggests that individuals are moving out of their parents’ homes, or other shared living space, to create their own household.
The working theory is that these newly formed households will want to move from high-cost rental housing to lower-cost homeownership. They will need a place to live regardless of whether they buy or rent their home. This pent-up demand is expected to translate to new residential construction.
Stan Humphries, Zillow’s chief economist, addressed the conundrum facing the housing industry in a statement released with the report. Humphries’ comments are in a vein similar to those cited by residential developers in the Federal Reserve’s Beige Book from the Atlanta District that was released in January.
- “Despite rising home values, home ownership remains very accessible for buyers that can scrape together a down payment – even if that down payment is relatively modest – find a home to buy and secure financing.
- “But what keeps me up at night is the fact that it still remains so difficult for so many potential buyers to make those particular stars align, largely because renting is so unaffordable these days. It’s very difficult to come up with a down payment when so much of your monthly paycheck – especially on an entry-level salary – is going to your landlord instead of into your savings. Buying conditions are getting better every day, and in time the allure of fixed housing payments and building wealth through home equity will draw more buyers out of rentals and into home ownership.”
The Beige Book for the Atlanta District included this passage:
- “Most District brokers indicated that home sales fell short of their plan for the period. Many contacts noted that home sales were flat or down slightly compared with a month earlier. Brokers continued to report modest home price appreciation. The majority of brokers indicated that inventory levels remained flat from the prior month’s level and that buyer traffic was flat to down over the same period. Brokers indicated that they expect home sales to remain flat or increase slightly over the next three months.
- “Incoming signals from District home builders were relatively unchanged since the last report. Contacts characterized construction activity as flat from the previous month and new home sales were flat to down slightly over the same period. Most builders indicated that the inventory of unsold homes was flat to slightly up compared with a month earlier. Modest home price appreciation continued to be reported. Builders’ outlook for new home sales and construction activity over the next three months was fairly positive, with most indicating that they expect activity to be flat to slightly up.”