The Buy vs. Rent Conundrum

Updated from June 21

Housing options essentially boil down to buying or renting, and these days that feels like a choice between boarding the Titanic or settling onto the Hindenburg.

For buyers, the days of easy money are drawing to a close now that Ben Bernanke and Co. at the Federal Reserve have passed 17 straight quarter-point rate hikes, bringing mortgage rates higher in tandem. Meanwhile, the rising rate environment makes "exotic" adjustable-rate, no-money-down options look downright foolish. Moreover, real estate brokers nationwide report that sellers are not yet willing to bring down home prices.

Renters lulled into complacency by years of stagnant or sinking rental rates also are in for a rude awakening. Apartment rents are expected to increase nationwide by an average of 5.3% this year, and even more so in high-density metropolitan areas, according to the National Association of Realtors. That's about double last year's average increase and the highest leap since 2000.

"The housing bubble has helped push rental prices higher," says Christopher Lobello, regional manager at the Las Vegas office of Marcus & Millichap, an investment property firm. "As the boom wore on and prices became less affordable, that made renting look more attractive and that created more demand, and rents rose. That's how it works. These prices often move together."

Lobello also says that a glut of condo conversions has boosted annual rents by taking supply off the market, and the NAR says that the 100,000 families displaced by Hurricane Katrina are also pressuring supply. The association also says that the amount of new apartments being built is down this year, exacerbating the problem.

"As the housing market begins to adjust to more normal growth, the rental market is adjusting, too, in the form of much higher rent," says Lobello.

Buyers Prepare

So what's a shelter-seeker to do? A recent report from Harvard's Joint Center for Housing Studies shows that buying may still be the best choice.

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