Rising Rents Reinvigorate Homebuying Interest

by Chicago Agent

A sky-high demand for rentals is driving up rent prices, and with it, housing affordability.

The main thrust of housing’s spring selling season is just around the corner, and in 2012, homebuying may be helped from a most unlikely source – rental rates.

In the post-boom housing economy, renting has ascended to its most prominent position in more than a decade, but with that success has come some disadvantages to renting that may inspire more Americans to consider homebuying, according to analysts featured in a Wall Street Journal piece.

In 2011, average apartment rents rose by 2.7 percent, as high demand for rental units pushed the sector’s vacancy rate below 5 percent, the first time that has happened since 2001, according to a quarterly survey by Reis Inc. Of the 82 metropolitan areas Reis surveyed, all experienced rising rents and falling vacancies.

Nishu Sood, a housing analyst with Deutsche Bank, found similar trends in his research, according to the Journal. Historically, Sood said that rental units were 10 percent cheaper than the post-tax cost of owning a home, but with rising rents in recent years, that distinction faded in 2010, disappeared in 2011, and now, in 2012, the average rent will be 15 percent higher than the cost of owning a home, a situation that is “overwhelming in the favor of buying now. It is unequivocal.”

And those analyses are leading some housing professionals to predict a resurgent market for homeowners. For instance, Ronald Peltier, the chief executive of HomeServices of America Inc., said in the Journal‘s article that with rents rising, home prices falling and interest rates at historic lows, new demand has arisen for entry-level homes.

Zelman & Associates, a research firm that specializes in housing, recently stated that 2012 will be the first time in seven years that more renters transition to homeowners than the year before.

“The equation of renting versus owning is becoming much more favorable for owning,” said Ivy Zelman, the firm’s chief executive, in the Journal‘s article.

In CoreLogic’s latest Home Price Index, home values declined in Illinois by 7.1 percent from February 2011 to February 2012, and in the Chicago-Joliet-Naperville region, the 7.3 percent decline in values was the highest in the nation. Meanwhile, rents in the Second City increased by more than 9 percent in Zillow’s newly-released Rent Index. Would Chicago not seem prime for the very market forces so thoroughly chronicled by the Journal?

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