Low interest rates. Fallen home prices. Rising rents. Is now the time to buy a house? Owning is a more attractive proposition than renting in many -- perhaps even most -- U.S. cities.
It's more affordable to buy a house today than it has been in ages. In fact, the National Association of Realtors says houses were the most affordable in 2012 than they had ever been since the group began tracking the data in 1970.
Today's high affordability combines two factors: low prices and low interest rates, says Leslie Appleton-Young, chief economist for the California Association of Realtors in Los Angeles.
"This is a once-in-a-generation opportunity to buy real estate. I emphasize that double bold and underline," she says.
Still, some people in some places aren't able to buy a house or don't want to become homeowners -- at least not right away. They would rather rent.
"What's subduing that attractiveness (of buying a house) a little bit has to do with how many people have bad credit, no credit, don't have a down payment, don't have a job or don't want to undertake a big financial obligation, even if it's a fire sale," Appleton-Young says.
She adds that renting appeals to people who have just started a new job or who are uncertain about job security.
There's a flip side: Rents are rising in some cities, partly because of increased demand for rental housing. Higher rent makes renting a less appealing option, particularly in places without controls on rent increases.
"The demand for rental housing is greater in areas where we've had significant foreclosures because there are families that have lost their home and renting is the only option," Appleton-Young explains.
More renters might buy a house as the economy improves and employment strengthens, but that's not expected to happen right away, says Jed Kolko, a housing economist in San Francisco.
"When you get a new job, you don't buy a house the next day. You (wait until) you've saved a down payment and you're sure enough of your job security that you can make the commitment. It will take some time before recovery in the job market carries over fully to the housing market," Kolko explains.
What's more, builders are putting up new apartment buildings to take advantage of the demand, and that could keep a lid on rent prices, though again, it's a delayed reaction.
Lenders stuck with too many foreclosed houses, and investors who've been buying up these properties, also have plans to increase the supply of rental housing. But again there's a glitch: Many of those homes aren't located in cities where the jobs are.
"Converting vacant foreclosed homes to rentals doesn't help renters who are suffering rising rents in downtown New York or San Francisco because that's not where the foreclosed homes tend to be," Kolko says.
Time in place
One factor that hasn't changed is that there are high transaction costs when you buy a house. Consequently, the stay-put-or-move-soon question is crucial. For people who plan to move within five years, it "starts to make a lot less sense" to buy a house, Kolko says.
"If you're in a stable job, but (in) an industry where people move around often and you might have to move to another city in three years, you might not want to incur the costs of buying and owning a home," he says.
Housing markets are notoriously local, so that's another factor that complicates the decision to rent or buy a house. Longer-term economic and housing fundamentals are important determinants in the direction of most markets -- even more so, Kolko says, than the proportion of foreclosure-related home sales.
Copyright 2013, Bankrate Inc.