To Rent Or To Buy: That Is The Question

Nobody wants to own a home anymore, or it at least seems that way. Since the housing bubble burst in the middle of last decade, new home sales have continued to drop, and the U.S. economy is much worse off because of it. Housing is a major portion of the economy, and with housing in a slump, the U.S. economy has followed. According to a CNN Money article, it has become cheaper to actually own a home then it is to rent one, despite the weakened economy. Trulia, which is a major real estate website, said that buying a home was cheaper than renting in 74% of the largest 50 cities in the country. 12% of the cities it was cheaper to rent and the other 14%, renting was cheaper, but relatively close to buying. With the average interest rate on a 30 year mortgage below 4.2% and a 15 year rate at 3.43%, mortgage rates continue to plummet, thanks to the Federal Reserve. Last week, the Fed announced it would be keeping interest rates essentially the same until at least mid 2013, as the economy continues to remain weak. As such, names like Toll Bros. TOL, Hovnanian Enterprises, Inc. HOV, Lennar Corporation LEN D.R. Horton, Inc. DHI have become a shell of their former selves. This morning we saw mixed housing data, with July housing starts coming in at 604,000, on expectations of 600,000. However, building permits came in below expectations, at 597,000. Economists were expecting 607,000. "It's a personal decision, of course. But if you have a steady job and you are planning to stay for seven years or more and have enough cash to put 20% down and enough left over for seven or eight months of expenses, you're better off buying in most places," said Daisy Kong, a spokeswoman for Trulia to CNN. The Federal Reserve is trying everything it can think of to jump start the U.S. economy, and is even considering a third round of asset purchases, despite the fact it has not done much to boost the housing sector the first two times. There does appear to be a mindset shift going from owning to renting in this country if you take a look around. Cloud computing, iTunes, music, movies, etc. Nobody wants ownership of things anymore. This is a consumer mindset, but consumers are fickle. This could change on a dime, especially if they feel the value is not there anymore. With home prices starting to bottom out, the housing sector looks like it is finally starting to turn around. The latest Case-Shiller numbers saw pending home sales rise 2.4% in June, which handily beat economists expectations of a 2% decline. It's a start, that perhaps the U.S. housing sector is going to come out of the doldrums sooner than many people think. Warren Buffett believes the housing sector will turn around sooner than others think as well. It may also be the answer to the question that Shakespeare himself could not answer. ACTION ITEMS:

Bullish:
Traders who believe that buying a home is more economically feasible than renting now might want to consider the following trades:

• There are plenty of bargains in the home building sector. Consider names like K.B. Homes KBH, Lennar LEN, Toll Bros. TOL and D.R. Horton DHI.

• There are also alternative ways to play the sector, including owning companies that own master planned communities, such as Howard Hughes HHC.

Bearish:
Traders who believe that renting is the wave of the future may consider alternate positions:

• The Obama administration has done everything it can to try to get people to buy a home. You can not change a mindset with government policies that do not work. If people do not want to own, then the U.S. economy will need to structure itself drastically different then any of us could imagine.
  
  

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