Plunging prices make renting a home less smart

In the heady days of the housing bubble, it was often smarter to rent a home than it was to buy. That was because home values were so inflated that the monthly expenses of ownership were much, much higher than rental expenses. The only way for homeownership to make sense financially in some over-heated markets was for the market to bail speculators out with continued good returns. Obviously that didn't happen.

According to Green Street Advisors, a real estate consulting firm, mortgage payments averaged 66% more than rent payments at the housing bubble's 2006 highpoint. Bow that number has fallen to just 24% -- making mortgage payments just 24% higher than rent payments. That's the narrowest gap since 2001, and it's below the 18-year average of 26%. According (subscription required) to the Wall Street Journal, separate data from Moody's suggest that the relationship between mortgage payments and rental rates is coming back into a more historically normal range.

Of course these numbers are all averages, and really have nothing to do with your specific situation. Generally, the less expensive home you buy the more favorably it will compare to renting.

There are a number of calculators designed to help you decide whether you should buy or rent but the best one by far is this one, put together by the New York Times.