Buying looks better than renting in some markets


At the top of the housing bubble, the gap between the cost of rent and the cost of buying a home widened to 66% in some parts of the country. In other words, it was 66% more expensive to buy a house and pay the mortgage than it was to rent. Historically, a gap of about 12% is the norm.

Now that homes prices have dropped more than 40% in some of the hardest hit markets, we're finally seeing a light at the end of what has been a very dark tunnel. Green Street Advisors told The Wall Street Journal today that the average monthly rent for the largest 50 metropolitan areas was $1,045, compared with after-tax mortgage payments of $1,300 (this assumes a 5.5%, 30-year fixed-rate mortgage). That means mortgage payments average just 24% more than rent payments, the narrowest gap since 2001. If mortgage rates fall to 4.5%, which some economists are advocating, mortgage payments would average 14% more than rent payments -- a level we haven't seen since 1998.