“It’s normal,” said Richard Bernstein of Richard Bernstein Advisors on CNBC’s “Squawk Box.” “Housing is an early cycle sector. Interest rates are low, incomes start to grow, so in an early cycle environment you can buy, but in a later cycle, interest rates go up, home prices go up, it’s harder to buy.”
The recent acceleration in home prices has been due to a supply imbalance in the market: too much demand and too little supply. That has shifted the equation back to rent, even though rents have increased a lot in the last few years.
According to July home and rent prices, buying a home was cheaper than renting in just 35 percent of the nation’s counties. That is down sharply from 44 percent just one year ago.
And it’s not just cheaper to rent, it may also now be a better investment. Renting and reinvesting the savings from renting, on average, will outperform owning and building home equity, in terms of wealth creation, according to new research from Florida Atlantic University and Florida International University faculty. That is the first time renting outperforms buying since 2010.
In 16 of the 23 major metropolitan markets covered in the research, renting is a better investment than buying. These cities include Atlanta, Dallas, Denver, Houston, Los Angeles, Miami, San Francisco and Seattle. It is still, however, better to buy than rent in much of the Midwest and Northeast, with Chicago and Cleveland showing the best ownership scores.
So what does all this mean for the wealth of average Americans and the health of the housing market?
“Since homeownership has historically been an important source of household wealth creation, it could be problematic if this trend continues for too long,” Hale said. “Still, even in places where renting is currently more affordable, rising home prices provide wealth-building opportunity for homebuyers.”