Home Buying Making More Sense in a Higher-Priced Rental Market

Make no mistake: 2011 will be good year for buying a home and a less advantageous year for renting a house or apartment.

Although average rents are lower than average mortgage payments, the gap between the two is shrinking.

The average monthly house payment (with upkeep and mortgage) in Orange County is about $2,660 while the average monthly rent payment is about $1,490. That’s significant and will keep some folks out of the housing market. But the gap is already starting to narrow.

Experts expect home prices to hold steady or increase just slightly, while fewer apartments fuel higher rents in Fountain Valley and the remainder of Orange County. Central Orange County is expected to see only slight increases in home pricing.

Asking rents in Orange County should jump by 3.7 percent this year, according to the Marcus & Millichap 2011 National Apartment Report.

Look for a 4.5 percent increase in the effective rent rate, which is the amount landlords receive after concessions and discounts calculated. What this means is that landlords will not be pressed to provide as many concessions and discounts (like one month free rent) this year.

So if there ever was a good time to buy a home, the time is now. But impediments remain that will continue to keep many buyers from purchasing a home. The economy is improving slightly, but remains shaky. And loans are not as easy to get as they were during the housing bubble.

An improving job market is a positive sign, especially in Orange County, where 18,300 to 24,000 new jobs will be added, according to local economists.

The variety of available homes is good, ranging from condos and duplexes to larger homes for big families. And realtors are anxious to sell.

Rental availability remains fairly good, but vacancy rates should fall by 1.3 percent. Rent hikes are expected to be the largest in three years.

So homes will begin to look more attractive, especially to entry-level buyers. They will find that because of the lowering of entry level housing prices, they are in a better position to buy.

The average entry level home in Orange County is priced at $409,000 with monthly house payments of $2,100. To buy a home at that price requires an annual income of about $63,000, which about 60,000 of Orange County households could afford in the fourth quarter of 2010, according to the California Association of Realtors.