The competition between renting and owning

Posted at 2:25 PM on February 19, 2010 by Chris Farrell (0 Comments)
Filed under: Housing & mortgages

From chief economics correspondent Chris Farrell

In an earlier post, Paul mentioned that Minnesota state economist Tom Stinson said he wouldn't be surprised if home values in the area trend down by another 3 percent to 5 percent. The rental data in the Consumer Price Index that came out today suggests that is a reasonable forecast nationwide, too.

Many factors affect the value of homes, from the health of the job market to the state of the economy to the animal spirits of speculators. Still, the rental market is a critical anchor to prices in the home owning market. The reason is that consumers can decide to rent or buy shelter. Rent and owning are competing markets. For instance, if rental prices are going up owning may become more attractive, and vice versa.

The Bureau of Labor Statistics reported in the CPI that rents from December, 2009 to January, 2010 were unchanged; for the 3 months ending in January rents fell by 0.1 percent; and for the 6 months period it was a decline of 0.3%.

What's more, other data suggest that rents may continue to trend lower. The Census Bureau says the national rental vacancy rate in the fourth quarter 2009 was 10.7 percent, a near record high.

The bottom line: Stinson's housing market forecast seems reasonable both locally and nationally.

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