It’s been a rather tough year in the housing market. While the S&P 500 is up about 7% so far this year, the top US Home Construction ETF (ticker ITB) has lost more than -15%.
July also marked the 5th straight month of declining home sales. Ouch.
Monthly costs of buying and owning a home have increased 14% over the past year while rent has increased just 4% over the same period.
For the first time in more than eight years, it is cheaper to rent than to buy.
According to a recent study by the Hollo School of Real Estate at Florida International University, the US housing markets are now in “rent territory.”
Their analysis shows “renting and reinvesting, on average, will outperform owning and building equity in terms of wealth creation.” This has not been the case since mid-1999.
Although we may be at a moment where renting beats buying, what of the long long-term?
A mortgage is usually fixed for 30 long years, holding steady the major component of owning. (Granted taxes and insurance tend to fluctuate in a single direction - up.)
Nevertheless, with each payment, a home-owner is building equity – not flushing money away.
Few tenants are secure their rents won’t indiscriminately increase. Or worse, an owner can decide to sell and a renter is left to find a new home, maybe with little notice.
For now, the cold hard economics point to renting. Yet while it doesn't make the most financial sense, most renters would probably rather be owners.
Weekly Update through September, 7 2018 The S&P 500 lost -98bps, even as the Dow Jones declined -14bps, the Russell 2000 slipped -1.57%, and the Nasdaq slid -2.53%.
As for US bonds, they lost -45bps.
Globally, the MSCI World Index lost -1.69% and the Barclays Global Aggregate Bond Index declined -43bps.
The Euro Stoxx 50 lost -2.93% in local-currency (Euro) and -3.21% in USD. Meanwhile, the Topix declined -2.94% local-currency (Yen) and -2.88% in USD.
