AFP/Getty Images

"For Sale" and "For Rent" signs are seen on the front of townhomes in Centreville, Va.

Published: June 08, 2011

by Chris Arnold

Home prices around the country have fallen into a double dip. After declining around 30 percent from their peak, they started to rise a bit last summer with the help of a federal tax credit.

But with that stimulus gone, prices are now sliding again to new lows. And while some pundits say a lease makes more sense than a mortgage, other economists insist it's a great time to buy.

'American Dream' Under Fire

Since the housing bubble burst, there's been some dramatic questioning of homeownership. A Time magazine cover declared that owning a home may no longer make economic sense. And politicians are under fire for over-promoting homeownership.

It's enough to make any prospective homeowner hide under their bed in their rented apartment. But many economists, like Mark Zandi with Moody's Analytics, say these concerns are overblown.

"Everyone's re-evaluating more carefully whether they should own a home or not," Zandi says. "But for the vast majority of Americans homeownership is still the right thing."

Zandi says the same fundamentals are still true: If you can afford it, there are a lot of advantages to homeownership. With a fixed interest rate, your home payment never goes up. But your rent will climb in most places. And even if prices don't rise that much — if you pay down the mortgage every month, and you don't take out a big home-equity loan — there's an automatic savings for the future built into owning.

"This is why homeownership has been such an important part of the American Dream, because people have used it as a way to save. And it's been a relatively safe way to save," Zandi says. "Now of course, as we know as we have seen, there are ups and downs. But in general it's been a pretty good investment."

Buy Now To 'Benefit In The Long Run'

Zandi says the housing crash hasn't changed the nature of homeownership.

"The other thing to consider is that like any asset — after a crash, after prices have fallen very quickly — everybody is very nervous and reticent to dive back in, but it's the people who do that who benefit in the long run," he says.

Zandi has been tracking home prices as they've fallen in cities and neighborhoods across the country. And he's asking this question: Does it make sense for people to buy a home right now?

"I think the arithmetic is such that if you plan to live in your home five or more years, then you should really consider buying a single-family home in most parts of the country at this point in time," he says. "Prices have fallen so far, that single-family housing now is very, very attractive; very affordable [...] and it's now even attractive relative to renting."

Cost Of Owning Has Sunk

While it's been getting cheaper to own a home, it's actually been getting more expensive to rent a place to live.

Gleb Nechayev is a housing economist with CBRE Econometric Advisors, a real estate research firm in Boston. Nechayev has a chart that shows the cost of owning a house compared to renting. Back in 2006, the cost-of-owning line on the chart was reaching its peak, but now the line has plunged down — like the cliff of a mountain.

"We are at the very bottom of that mountain right now and we have never seen that ratio so low," Nechayev says.

Nechayev's data goes back to 1986. And he says since then, it's never been this cheap to own a house as compared to the cost of renting. Of course, these are national averages and there are some big differences depending on the city and neighborhood and type of home.

But overall, it's gotten so cheap that Nechayev is puzzled why more people aren't buying.

"The fact that we haven't seen people jumping at this opportunity does suggest that we might be witnessing some kind of changing perception of homeownership," he says.

Nechayev says younger would-be homebuyers may be deciding to live in cities, where it can still be harder to find and afford a nice home or condo in a good neighborhood.

And he says job mobility is a big issue for many people in the still shaky economy. If they have to move to take a new job, it's a lot easier to do as a renter. [Copyright 2012 National Public Radio]

TRANSCRIPT:

RENEE MONTAGNE, host:

This is MORNING EDITION, from NPR News. Good morning. I'm Renee Montagne.

LINDA WERTHEIMER, host:

And I'm Linda Wertheimer.

Home prices around the country have taken a double dip. Prices had been rising a bit last year with the help of a federal tax credit. But with that stimulus gone, prices are now sliding again, down more than 30 percent from the peak. Still, some people think renting is smarter than buying. But more economists are saying it is now a very good time to buy.

NPR's Chris Arnold reports on Americans changing attitudes toward home ownership.

CHRIS ARNOLD: Since the housing bubble burst, there's been some questioning of homeownership. A Time magazine cover story declared that owning a home may no longer make economic sense. Politicians are under fire for over-promoting homeownership.

Unidentified Woman: So, are the good old days of building your wealth via homeownership dead and gone?

ARNOLD: There's been plenty of talk on CNBC and other TV networks about all this.

Unidentified Woman: Are Americans making a big mistake viewing their homes as an investment opportunity, a way to build wealth? That's the key issue posed in today's front page New York Times story, which questions...

ARNOLD: It's enough to make anyone thinking about buying a house hide under their bed in their rented apartment. But many economists say these concerns may be overblown.

Mr. MARK ZANDI (Chief Economist, Moody's Analytics): Everyone's re-evaluating more carefully whether they should own a home or not. But for the vast majority of Americans, home ownership is still the right thing.

ARNOLD: Mark Zandi is the chief economist of Moody's Analytics. He says if you can afford it, there are a lot of advantages to homeownership. With a fixed interest rate, your home payment never goes up. When you rent, in most places, surely will. And even if home prices don't rise that much anytime soon - if you pay down the mortgage every month and you don't take out a big home equity loan - there's an automatic savings for the future built into owning a house.

Mr. ZANDI: This is why homeownership has been such an important part of the American dream because, you know, people had used it as a way to save. And it's been a relatively safe way to save. Now, of course, as we know, as we have seen, there are ups and downs. But in general, it's been a pretty good investment.

ARNOLD: Okay. So ultimately, just because we had a housing crash doesn't change the nature of homeownership.

Mr. ZANDI: Well, the other thing to consider is that like any asset, after a crash, after prices have fallen very quickly, everyone's very nervous, reticent to actually dive back in, but it's the people who do that benefit in the long run.

ARNOLD: Zandi's been tracking home prices as they've fallen in cities and neighborhoods across the country. And he's been asking the question: Does it make sense for people to buy a home right now?

Mr. ZANDI: Yeah, I think the arithmetic is such that if you plan to live in your home five or more years, then you should really consider buying a single-family home in most parts of the country. Prices have fallen so far, it's very affordable, and it's now even attractive relative to renting.

ARNOLD: While it's been getting cheaper to own a home, in many places, it's actually been getting more expensive to rent a place to live.

Gleb Nechayev is a housing economist in Boston with CBRE Econometric Advisors. It's a real estate research firm. And when we stopped by, he was printing out his latest research.

(Soundbite of machinery)

Mr. GLEB NECHAYEV (Housing Economist, CBRE Econometric Advisors): So, we're picking up our graphs here.

ARNOLD: This is a chart you've printed out.

Mr. NECHAYEV: Yes, it is.

ARNOLD: Nechayev's chart shows the cost of owning a house - the principal and interest payment - compared to renting. We also spoke with him back in 2006 when this cost-of-owning line on the chart was reaching its peak, and now the line has plunged down and down.

Mr. NECHAYEV: We are at the very bottom of that mountain right now, and we've never seen that ratio so low.

ARNOLD: Nechayev's data goes back to 1986. And he says since then, it's never been this cheap to own a house, as compared with the cost of renting. Of course, these are national averages, and there are some big differences depending on the city and the neighborhood and the type of home, if it's in good shape or bad shape. We have charts breaking some of that down at npr.org. But overall, it's gotten so cheap in many areas, that Nechayev is puzzled by why more people aren't buying.

Mr. NECHAYEV: The fact that we haven't seen people jumping at this opportunity does suggest that we might be witnessing some kind of changing perception of homeownership.

ARNOLD: Nechayev says part of it might be that younger people are deciding against the suburbs and choosing to live in cities, where it can still be harder to find and afford a nice home or condo in a good neighborhood. Also, he says with the economy still shaky, job mobility is a big issue for many people. In other words, if they have to move to take a new job, that's a lot easier to do if they're renting.

Chris Arnold, NPR News, Boston. Transcript provided by NPR, Copyright National Public Radio.