The other day an individual in my office doing a property search pointed to an article written weeks ago that featured an analysis developed by JP Morgan in which they compared regular monthly rent to regular monthly mortgage payments over time. The outcomes of that analysis have been summarized in the graph. Owning realty is cheaper than renting. I have been saying this for months.
What is striking about the analysis is the fact that from 1988 to even 2005 rents have been rather cheap or exactly the same as regular monthly mortgage loan payments. That's just what you'd assume since any sort term diversion in those two numbers should logically result in individuals shifting from one particular housing model to the other. Eventually the balance between realty and renting would be equal. Notice that I said assume.
Nevertheless, from 2005 to 2007 monthly mortgage loan payments shot up ahead of rents due to soaring housing prices. But people continued to buy houses despite the fact that renting was a less costly option. But at some point logic prevailed and realty costs began to drop - and continued to drop soon after buying became cheaper than renting. Banks refusal to loan money had a lot to do with this.
Most significantly, observe that as of the 4th quarter of 2012 owning realty is 33% less costly than renting a property due to the extended decline in home prices and mortgage loan interest rates. So logically one would assume, (there is that word again) that realty (property) prices should rise to catch up with rents and that's almost certainly what's behind the boost in home prices over the last 12 months.