Rising Chicago Rents Make Home Buying Most Attractive In 20 Years

I recently posted on how fast rents have been rising in Chicago recently. On the same day this week’s Crain’s came out with a story on how the cost of owning a home in Chicago has just reached a 20 year low compared to renting. Their conclusion was based upon a recent report issued by Deutsche Bank, which I have not been able to track down. They even provided this nifty little graph which makes a pretty compelling case.


The graph compares the average Chicago rent to the after-tax monthly mortgage payment for a median priced home – a little bit of a red delicious to granny smith apples comparision but not all bad. What it shows is that in the 4th quarter of 2010 renting was 18.6% more expensive than buying. Of course, individual results may vary and I still recommend using the New York Times Rent vs. Buy Calculator.

Between record low mortgage rates, decade low home prices, and rising rents, this result is inevitable. Compare where we are now to where we were during the peak of the housing bubble. That graph bottoms at 58.5%, which means that renting is now twice as expensive relative to buying as it was back then. The other interesting aspect of this graph is that for the first time in 20 years the economics of the rent vs. buy decision for Chicago has significantly diverged from the US average – i.e. rents have risen faster in Chicago relative to home buying costs than the rest of the country.

Yet, a lot of people are still afraid of buying because of fear of catching a falling knife. OK, admittedly a lot of people don’t have the down payment or don’t qualify for a mortgage for other reasons. However, everyone knows that the average person tends to buy high and sell low in the stock market and I would fully expect the same to be true in the housing market. Psychologically it’s a lot easier to do what everyone else is doing. But if all your friends were jumping off a cliff…

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