Bloomberg News

Rent-Buy Ratio Turns Against U.S. Homebuilders: Chart of the Day

December 20, 2013

Chart of the Day

Home buying has become more costly than renting in the U.S. and the price gap will widen to 1990s levels during the next two years, according to an analysis by Deutsche Bank AG.

The CHART OF THE DAY shows the rent-buy ratio, or the average rent nationwide as a percentage of mortgage payments after accounting for tax benefits. Deutsche Bank put together the ratio from data compiled by the National Association of Realtors and the REIS information service.

Last quarter, the calculation favored renting for the first time in three years. Rent dropped to 98.4 percent of homeowners’ after-tax mortgage cost from the second quarter’s 100.5 percent.

“The trajectories of mortgage rates and especially home prices have changed course sharply” since the first quarter of 2012, when the ratio reached a record of 120.7 percent, analysts Nishu Sood and Vin Chao wrote in a Dec. 17 report.

Higher home-loan rates and smaller price increases will reduce the figure to 90.7 percent at the end of 2015, the New York-based analysts wrote. The estimate is in keeping with the “normalized ratio” of about 90 percent from 1990 through 1999, the report said.

Among publicly traded homebuilders, KB Home and MDC Holdings Inc. have the least favorable buying conditions in their local markets, the analysts wrote. Beazer Homes USA Inc. and Ryland Group Inc. are in the best position, based on local rent-buy ratios.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net


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