Rent comparison has long been hailed as a fundamental factor in setting the value of real estate. When it is cheaper or slightly more to purchase a home rather than rent, a purchase of real estate makes sense for a buyer. In recent reports, Deutsche has been using this indicator to try and gauge the future of housing prices.
For example, Deutsche Bank reported that Americans paid about 13% more to own a home in 1999 than to rent a comparable home. Compare that number with Americans paying 66% more to own than to rent during the 2000’s which brought the ensuing Great Recession.
Unfortunately the market stabilization would make one think it is a great time to buy but the this indicator does not reflect lender and government intervention. However, it is a great tool along with price per square foot to properly price a home. If a mortgage payment is 25-30% more than what the rent would be, does it make sense to buy?