“We’re probably overdue for a correction, simply because there’s a huge imbalance between what it costs to rent versus what it costs to buy in most markets,” Sharga said in a telephone interview. “The real danger for investors now is paying too much for the asset itself and then seeing rental rates fall.”
The cost of renting a home was 44 percent higher than owning, after factoring in costs such as insurance and taxes and benefits, such as mortgage interest tax deductions, Kolko said. That’s little changed from a year ago, even as home prices rose, because lower interest rates have kept housing affordability level, he said.
American Residential Properties Inc., an owner of single- family rental homes that plans to raise $300 million in a U.S. initial public offering, has expanded its portfolio to states such as Indiana, North Carolina and South Carolina, the Scottsdale, Arizona-based company said in a filing last month. Since January, American Residential Properties has purchased almost 300 homes in the Chicago area, where rents generate a median 7.2 percent on a three-bedroom home, according to RealtyTrac.
End Users
“When the values go up faster than the rental, it’s time to sell your property to end users,” Jim McClelland, president of Mack Companies, a Tinley Park, Illinois-based single-family rental operator that sold homes to American Residential Properties, said in an interview last month.
Demand for rentals has outstripped Americans’ ability or desire to buy. The number of rental households increased by 1.1 million in 2012 while the number of owner-occupied homes fell by 106,000, according to Commerce Department data. That trend may be starting to shift.
About 7 million homeowners have lost their properties through foreclosure or by selling for a loss since 2007, according to RealtyTrac. More than 1 million of them are now eligible for mortgages backed by the Federal Housing Administration, which requires a three-year waiting period and a minimum 3.5 percent down payment, said Mark Zandi, chief economist for Moody’s Analytics Inc. in Westchester, Pennsylvania.
“The scales will tip back toward home ownership as opposed to a renter nation, because people are realizing that home prices are good,” Blomquist said. “So rental rates will flatten out. ”