Not many apartments available to rent

The vacancy rate for apartment fell to its lowest since 2001 in the fourth quarter as more people rented.

Tess Vigeland: To rent or to buy? That is the question that befuddles many a potential homeowner these days. Mortgage interest rates are at historic lows and prices are way down from their peak, so at some point it becomes logical to own, right?

Well, there are lots of factors at play in deciding to buy a house, and what you're paying in rent is one of those factors. The real estate data firm Reis reported today that the national apartment vacancy rate is at its lowest level in 10 years, and that means rents are rising.

So, could this be a tipping point? Our Washington bureau chief John Dimsdale takes a look.

John Dimsdale: It wasn’t that long ago landlords had to offer incentives like cable TV or first-month’s rent free. Now, apartment vacancy rates in many cities are below 4 percent and renters are having to pay up. 

Rich Anderson: In many markets, the cost to rent is greater than the cost to own. 

Rich Anderson with BMO Capital Markets says normally, high rents would be driving people to buy homes. But mortgage lenders require pristine credit scores and higher downpayments, making renters reluctant to look for alternatives.

Rich Anderson: At the end of the day, there is an excessive amount of credit that is required to buy a house. I think once that eases, you’ll see some pent up appetite for people to go and buy a home. After all, the American dream is not to rent an apartment, right?

He says higher rents, along with record-low mortgage interest rates, will help spark a turnaround in homebuying this year.

But economist Michelle Meyer at Bank of America Merrill Lynch is skeptical. She says no matter how high the rents and how low the interest rates, we’re not at the point where renters turn into buyers.

Michelle Meyer: The fact there’s an expectation that prices will fall further and credit is tight, coupled with the weak economy, could mean that for a period of time rents actually remain expensive to home prices.

She says it’ll take a change in the economy, not just rents, before people feel secure enough to go house hunting again.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.
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Come on Rich, " lenders require pristine credit scores and higher downpayments". Really?!?! You mean higher down payments like 3% instead of zero down? You guys won't be happy until we get back to the unprecidented loose standards during the housing bubble.

One of the big reasons for any shortage in rental housing is the record number of houses that are being held vacant by banks that realize it's better to hold them empty than sell them into the market at a loss since they can borrow at near zero rates from the Fed and pretend everything is fine.

Will people be FORCED into the mortgage market as rents become unaffordable? The short answer is no, and banks are only lending to developers and speculative investors anyway. But it’s clear that this is the strategy Wall Streeters have in mind as they buy up housing and game our political system in anticipation of reflating of the housing bubble. It’s like an ideology that has totally failed—has no hope of working even with willing participants—but refuses to die. Until the securitization process ends, Glass Steagall is restored, and housing becomes priced to Main Street (wages) rather that Wall Street (investments), there will be no rebound in home buying, and renters will be forced to reoccupy city streets out of necessity rather than protest. This is what economic neo-liberalism-cum-third-world nation-state status is all about.

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