Average Rents are Higher than Average Mortgages

For the first time in a long time the average rent rate is considerably higher than the average mortgage.  According to JP Morgan this is part of the fall out from the Housing Bubble and Great Recession.

Why Rents are Higher than Mortgages

After the housing bubble crashed numerous people were unable to afford their homes. Some experienced dramatic rate increases on their ARM loans, and some found themselves underwater and unwilling to put money into a depreciating asset. And some people lost their jobs in the recession and were not able to keep up with their payments.

Hence the unusual growth in the rental market. Supply and demand economics 101: More renters, same number of rental units equals higher demand and higher rental rates.

Simultaneously interest rates plummeted making loans more affordable. Buyers began paying less for home through short sales and foreclosures. These sales depressed neighborhood property values further. Property taxes, which are based on home values, also decreased making home ownership even more affordable.

In the end you get a scenario where rents are higher than the cost of home ownership.

If you find this article interesting you should read up on how Real Estate Investment Trusts are buying up foreclosures to rent them out, not to sell them!

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