Rents rise, but few can buy instead

This post comes from Marilyn Lewis of MSN Money.

A new housing crisis is taking root: Rents are soaring and there are few vacancies, which means renters must spend ever greater portions of their income on housing, Reuters reports.

The rental market hasn't been this tight in about 10 years. The cost of renting is especially high when you compare it with the current low costs for buying a home. The national median rent for homes and apartments is $716. In 1995, it was from $400 to $450, the U.S. Census says (.pdf file).

In Minneapolis, for example, rental prices rose 11% last year, according to Trulia's Rent vs. Buy Index. At the same time, home prices fell 8%. The average price for a new home (.pdf file) in July, for example, was $273,900.

In a sane world, this would be the perfect moment to buy a home. With low home prices and way-low mortgage rates -- 3.49% was the average paid for a 30-year, fixed-rate loan last week, with 0.7 points -- renters would reasonably turn to homeownership.

But renters are caught between the hammer and the anvil. There's no escape from rising rent costs.

"People with lower incomes have long struggled to find affordable housing, but many in the middle class are now hurting, too," Reuters says. "Home prices have fallen a third from their peaks, but many Americans cannot benefit because they cannot get a mortgage." (Post continues below video.)

Americans are finding it hard to keep housing costs from consuming the household budget. Adds Reuters:

Most personal finance experts recommend allocating no more of 30% of family income to housing, but nearly 40% of Americans are paying more than a third, according to the U.S. Census Bureau's American Community Survey.

Can't buy

Not everyone wants to buy, even if they could. Many prefer the flexibility of renting. But in March, 63% of people polled told Prudential's Real Estate Outlook Survey that real estate was a good investment.

Banks continue to be extremely careful about lending, especially on mortgages. The average credit score for those who got a mortgage is 762. Yet 65% of Americans have scores below 750. Reuters quotes research:

"Basically, access to credit for borrowers with less than spotless credit is severely limited," the Morgan Stanley report states. "A good chunk" of U.S. households are "cut off from mortgage credit on this count alone."

Mortgage lenders blame government regulations for forcing them to be cautions. New rules shift more responsibility for risky mortgages from taxpayers and investors to lenders.

Here's an intriguing way to look at the affordability problem: Trulia's Rent vs. Buy Index maps large metros where buying beats renting. An interactive graphic shows how buying beats renting in 98 of the 100 cities studied.

In only two high-priced towns -- Honolulu and San Francisco -- does renting compare with buying. Even in New York City, buying is a better deal.

In June, the biggest increases in rent prices from the year before were in:

• San Francisco, 14.7%
• Oakland, Calif., 11.2%
• Denver, 10.9%
• Miami, 10.5%
• Boston, 10.3%

The Washington Times says it costs $2,400 to $2,600 to rent a one-bedroom apartment in downtown Washington. Rents in the capital grew 5.2% between May 2011 and May 2012, according to Trulia.

Empty and full

Who would have thought we'd end up with a housing jam like this, what with all the empty homes from foreclosures? Last week the Census Bureau reported that nearly 11% of U.S. homes were vacant. That excludes "seasonal" homes (vacation homes, time shares and migrant-worker housing).

An estimated 86% of U.S. housing units were occupied in the second quarter this year. Occupancy was highest -- 91.3% -- in 1975. (Census numbers go back to 1960.) Since then, it's fallen gradually but steadily, hitting a bottom, more or less, at about 85.5% with the bust in the late 2000s.

Census spokesman Robert Callis confirms that one reason for falling occupancy rates, before the recent housing troubles, was a trend toward buying second homes and vacation homes that started in the '70s. (If you're hungry for more on this, see the Census Bureau's annual statistics, Table 9.)

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Your own decision

When you compare your own cost for renting vs. owning, remember: It's not as simple as looking at rent prices next to mortgage payments. There are also the factors of upkeep and repairs, property taxes and savings from tax deductions, interest costs, opportunity costs, closing costs, selling costs and appreciation.

Some rent vs. buy calculators help take these into account:

• The National Association of Realtors' calculator
• The New York Times' calculator
• MSN Money's rent vs. buy calculator

Even if you can afford to buy, forget it if you can't stay in the home at least five years, experts say. Headlines show what goes wrong when you are stuck in a home you can't afford to keep but can't sell.

Dismal as the whole picture is, there's little chance for change soon, Reuters adds:

"We have falling incomes, rising rents and nothing but substantial upward pressure on those rents," says Chris Herbert, director of Harvard University's Joint Center for Housing Studies. "And nothing in the cards suggests it will turn around anytime soon."

More from MSN Money:

• Reverse mortgages: The next disaster?
• Should I refinance?
• Should you rent out your house?
• Calculator: How much house can you afford?
• Banks accused of foreclosure bias
• The rent-or-buy test