This post is a comprehensive update as to the cost of new and existing homes vs. renting, all measured compared with median household income. As such it is epistolary in length. So here is the TL:DR version:
Half a year ago I wrote a long post discussing “the real cost of shelter,” by which I meant not just the downpayment on a house, but the monthly carrying cost for a mortgage, and comparing both of those with median rent.
That comparison showed that, while the “real” cost of a house downpayment was at a new high, the “real” cost of median asking rent was even higher. By contrast, the monthly carrying cost of a mortgage was quite moderate. This meant that, if a buyer could find a way to put together a downpayment, home-owning was a bargain compared to renting.
As I’ll show below, six months of price and interest rate increases later, there is even more stress on both homebuyers and renters.
By way of a quick recap, I wrote six months ago that I had never seen a discussion of the relationship between the relative cost of homeownership vs. renting, particularly as a function of the household budget. The choice (or ability) to live in the residence one desires isn’t a matter of its cost by itself, but also the relative cost of the type of residence. What is the cost of a house compared with the cost of an apartment? How expensive are each of them compared with a household’s income? If both are too expensive, maybe the choice is made to live with mom and dad as an extended family.
So, here are the three relationships I’ll look at again in this post
1. the “real cost” of a downpayment on a house.
2. the “real cost of renting
3. the “real monthly carrying cost” of a mortgage
The best metric for calculating these “real” costs on a household is median household income.
- as a multiple of median household income, new home prices are at an extreme beyond even the peak of the housing bubble, while existing home prices are about 5% under theirs
- but unlike then, when apartment vacancies were high and rents cheap, now rents are *also* at an extreme as compared with median household income
- even with their recent increase, interest rates are still lower now than during the housing bubble, so the median monthly mortgage payment adjusted for median household income is even still about 10% less than it was at the peak of the housing bubble
- if the trends of rising prices and interest rates continue, at some point they will overcome the demographic tailwind of the large Millennial generation having reached typical home-buying age. At that point there may be another deflationary bust
Half a year ago I wrote a long post discussing “the real cost of shelter,” by which I meant not just the downpayment on a house, but the monthly carrying cost for a mortgage, and comparing both of those with median rent.
That comparison showed that, while the “real” cost of a house downpayment was at a new high, the “real” cost of median asking rent was even higher. By contrast, the monthly carrying cost of a mortgage was quite moderate. This meant that, if a buyer could find a way to put together a downpayment, home-owning was a bargain compared to renting.
As I’ll show below, six months of price and interest rate increases later, there is even more stress on both homebuyers and renters.
By way of a quick recap, I wrote six months ago that I had never seen a discussion of the relationship between the relative cost of homeownership vs. renting, particularly as a function of the household budget. The choice (or ability) to live in the residence one desires isn’t a matter of its cost by itself, but also the relative cost of the type of residence. What is the cost of a house compared with the cost of an apartment? How expensive are each of them compared with a household’s income? If both are too expensive, maybe the choice is made to live with mom and dad as an extended family.
So, here are the three relationships I’ll look at again in this post
1. the “real cost” of a downpayment on a house.
2. the “real cost of renting
3. the “real monthly carrying cost” of a mortgage
The best metric for calculating these “real” costs on a household is median household income.
by NewDealDemocrat, Naked Capitalism | Read more:
