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ENTITLE DIRECT > Title Insurance Knowledge > Homebuying activity to surpass hot rental market, according to researcher

Homebuying activity to surpass hot rental market, according to researcher

01/26/2012
With the housing situation on the mend, a real estate expert believes the rate of home buying will soon outpace renting.

In recent months, reports have shown that rental activity has been increasing, as many consumers have been hesitant to buy a home due to fears that the housing market has yet to reach bottom and property values will decline further. But according to MSNBC.com, Paul Diggle, a housing economist from Capital Economics, the combination of record-low mortgage rates, affordable closing costs and rising rental prices will lead to more house hunters in the not-too-distant future, as it will be a more economical option.

This hasn't always been the case, though. Diggle found that the 33 percent drop in home prices combined with the more modest 15 percent rise in rent prices since the housing collapse evened the playing field. But with average mortgage rates below 4 percent, owning a home has become a more worthwhile option for those who are looking to save, MSNBC.com reports.

Based on numbers calculated by Diggle - and assuming home prices and rental rates stay where they are - if individuals have no intention of moving within the next seven years, they will wind up paying $9,000 less if they bought a median-priced home rather than rented one, the source indicates.

Under normal conditions, this kind of savings would lead to a dramatic surge in homebuying activity. However, because so many people have been on the sidelines for so long, Diggle said he's not expecting a significant surge in home sales, MSNBC.com noted.

Also potentially affecting the rate of sales, according to Diggle, are heightened lending standards homebuyers must satisfy to own a home, such as a 20 percent down payment that lenders often require. The Center for Responsible Lending is among the organizations that are opposed to the standard, as a recent study conducted by the firm found that these types of rules could prevent 60 percent of creditworthy borrowers from homeownership.

While a 20 percent down payment is not something all lenders require, some regulators would like the standard to become law for borrowers who want a government-backed mortgage.

"A proposal by regulators to define a high-quality mortgage as one with at least a 20 percent down payment, or possibly 10 percent, would hobble a healthy segment of the housing market," the report stated. "While higher down payments do result in fewer defaults, the payoff is small relative to the number of creditworthy households who could be shut out of the market."