Not many apartments available to rent

John Dimsdale Jan 5, 2012

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.

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