Could climbing rent prices cause more people to buy a house?
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Could climbing rent prices cause more people to buy a house?

With housing prices having fallen almost 33 percent since peaking in 2006, many homeowners nationwide have felt the brunt of the large price depreciation.  In contrast, rent prices have continued to climb over the past 3 years as former homeowners have switched to renting.  Could 2012 be the year during which the higher cost of rent causes more people to buy a house?

  • According to the Census Bureau’s Housing Vacancy Survey, since 1965 the number of households in the US has increased at an average annual rate of 1.5 percent, adding an average of approximately 1.3 million new households per year.   Between 2000 and 2007 household growth increased by an average annual rate of 1.0 percent.  According to a study by the National Association of Homebuilders, by extending the 1.0 percent average growth rate for the period of 2007-2010 equates to approximately 2.1 million household formations that were postponed because of the recession.  
  • According to real estate information company CoreLogic, the shadow inventory nationwide stood at 1.6 million homes at the end of January, lower than the 1.8 million homes in January 2011.   Of the houses in shadow inventory, 800,000 homes were seriously delinquent (90 days or more), 410,000 were in some stage of the foreclosure process, and 400,000 were already seized by lenders. 
  • Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade.   Home ownership has fallen from its peak of 69.4 percent in 2004, according to census data.  In the fourth quarter of 2011, home ownership was down to 66 percent.  This means that almost 2 million more households are renting now than in 2004.  With the price of rent increasing, buying a house becomes a more attractive substitute.

 

 

The opinions and forecasts expressed are for informational purposes only and may not actually come to pass.  This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan.  The representative does not guarantee the accuracy and completeness, nor assume liability for loss that may result from the reliance by any person upon such information or opinions. 

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1.) Crowe, David, Robert Denk, and Robert Dietz.  Pent-Up Housing Demand. 2 Feb 2011. Housing Economics. 21 Mar 2012
2.)Crowe, David, Robert Denk, and Robert Dietz. 
Pent-Up Housing Demand. 2 Feb 2011. Housing Economics. 21 Mar 2012. <.>
3.)
Housing Shadow Inventory Eases as of Jan. 21 Mar 2012. Reuters. 9 April 2012.
4.) Rich, Motoko. 
Rents Rising Nationwide while Home Prices Flat.  24 Feb 2012. New York Times. 11 April 2012.