Home Prices Are Down, but Rentals Are Rising

The housing market is gasping for air, and home prices are down to 2003 levels, according to the S&P/Case-Shiller Home Price Indices.

But that does not mean all housing is cheap. Rents are actually rising, according to the latest inflation data from the Labor Department. Last year, rents were essentially flat, but they have been rising steadily since the end of 2010. In August, rents paid for primary residences were up 0.4 percent compared with July, and 2 percent above a year earlier.

The reason is simply a matter of increasing demand for rental properties. In a better economy, the people who are now renting might be looking to buy a house. Many people do not have the financial capacity to get a mortgage. Interest rates are at historic lows, but lenders are making prospective borrowers go through ever more hoops to qualify for loans. People who are insecure about their jobs do not want to commit to mortgages, and those who are scraping by on unemployment insurance or savings certainly cannot buy a house.

“A lot of people are really changing their attitudes toward housing,” said Chris G. Christopher Jr.,
senior principal economist at HIS Global Insight. “So there is more renting going on.” With prices down, he said, housing “doesn’t seem like a very good investment.”