|US dollar index||88.6||0.0|
|10 Year Govt Bond Yield||1.74%|
|Current Coupon Fannie Mae TBA||103.3|
|Current Coupon Ginnie Mae TBA||104.2|
|30 Year Fixed Rate Mortgage||3.57|
Stocks are lower this morning on no real news. Bonds and MBS are up.
No economic data today, however we do have some Fed-speak.
Following on yesterday’s rent-versus-buy article from Trulia, I crunched some numbers to demonstrate the relative value proposition currently. Using census data for median asking rent and median house prices, I plotted the median asking rent against the mortgage payment for a FHA loan with 3.5% down, including mortgage insurance, property taxes, homeowner’s insurance, and the tax benefit of deducting interest and property taxes for a borrower making the median income. Historically, buying has resulted in a payment higher than the median rent payment. This makes sense: your mortgage payment will be more or less fixed, while rent will increase with inflation.
The chart below plots the two numbers in absolute dollars. You can see the two lines converging which means the rent-versus-buy decision is about as far skewed towards buying than it ever has been.
In the second chart, I plotted the difference between the “median” mortgage payment and median asking rent. The range recently has been anywhere from -10% to 100%.
The other thing to keep in mind with the rent vs buy decision is that the world’s central banks are on a mission to create inflation. They will eventually succeed, and over time the asking rent is going to increase, while the mortgage payment will be largely fixed, with the exception of property taxes and perhaps homeowner’s insurance. On the other side of the coin, home price appreciation will probably maintain at least a mid-single digit rate of appreciation, which is higher than the mortgage interest rate, especially when you take into account the tax benefits.
The takeaway is that the Fed is giving the homeowner a gift in low rates, and that won’t last forever.