U.S. homes cheaper than at any point in last 20 years, but Americans still favor rentals

U.S. homes cheaper than at any point in last 20 years, but Americans still favor rentals:

Source: CoreLogic

Nationwide housing affordability is at its highest level in more than 20 years, according to CoreLogic’s MarketPulse report released today. U.S. homes are now twice as affordable as they were in April 2006, based on the ratio of typical household income to the annual income needed to buy a median priced homes at current mortgage rates, and at the highest rate seen since “prior to the early 1990s,” the report says.
Even as mortgage rates rise, housing affordability will remain constant, according to the report, because CoreLogic projects home prices to fall another 1.5 to 2 percent, thereby offsetting the rising rates.
Nevertheless, the demand for homes is still low. The single-unit homeowner vacancy rate fell one-tenth of a percentage point to 2.2 percent in 2011, but that figure still represents 600,000 more units than the 1.5 percent vacancy rate considered to be normal.
Instead, Americans are choosing to rent as the number of rental deals increased 11.5 percent year-over-year in 2011 and comprised 29 percent of all single-family closings. By comparison, rental transactions represented just 11.3 percent of all closings in early 2006. Meanwhile, sales closings declined 9.8 percent between 2010 and 2011. In fact, rental demand is so strong that supply is now at its lowest level in the last five years — even as the volme of rentals increased 2.6 percent over the last prior.
As a result, investors are increasingly looking to purchase single-family homes and rent them out. The national capitalization rate for those properties was 8.6 percent in January 2012, down from 8.8 percent a year prior, but still well above the 5 percent cap rate that was standard in 2006. Housing markets in Florida and the Midwest have the highest cap rates, with West Palm Beach, Fort Lauderdale and Cleveland leading the way, each posting rates of at least 12 percent. — Adam Fusfeld