Homeowners' edge over renters shrinks in some markets

Dive Brief:

Although the economic advantage of buying a home continues to beat that of renting one in the top 100 U.S. metros, the former lost some of its edge in all those markets in the last year, according to Trulia.
That’s because home prices have increased 9.1% since 2014 while rents have risen just 2.6% during that time. Compared to a year ago, rental rates dropped or remained flat in all but seven markets.
Metro areas with a clear buying advantage include Baton Rouge and New Orleans, LA; Philadelphia; Columbia, Charleston, and Greenville, SC; and Detroit. The markets were it makes less sense to buy are San Jose, CA, San Francisco, Honolulu, Oakland, CA, Orange County, CA, and New York.

Dive Insight:

Median rental prices have slowed dramatically over the past year, with Zillow estimates finding a nationwide average increase of just 0.7% year-over-year in March, while home values climbed 6.8% over the same period.

Even with slowing rent growth, simultaneous slow wage increases continue to hamper many young people’s ability to save for a down payment, even if they could otherwise afford a monthly mortgage payment. Zillow estimated that renters must bring in an additional $168 in income per year to keep pace with future rent increases. That’s a challenge when, according to a report last fall in the Journal of Regional Science, rents rose 28.7% from 1970 to 2010 while incomes increased 13.8% during that period.

Meanwhile, driven by low for-sale inventory levels and strong demand for housing, home prices have continued to climb. The latest CoreLogic Home Price Index showed home prices up 1.6% from February to March, with a year-over-year increase of 7.1%. Price growth is expected to taper, increasing 4.9% from March 2017 to March 2018.

Landlord REITs are banking on renters staying put a little longer, building more and more new single-family homes specifically to serve as investment rental properties. However, data indicate that such activity could be taking much-needed for-sale entry-level inventory off the market at a critical moment.