When it’s time to decide to rent or own a home, many factors have to be weighed. The first hurdle of owning is, of course, the down payment. Another consideration is the overall cost of owning compared with the cost of renting. How has this cost ratio changed over time? The consumer price index can help answer this question, as it has one sub-index that measures the cost of renting and another that measures the cost-equivalent of renting for a homeowner. The graph above shows that the changes in rent and changes in the cost of owning track each other quite closely. Until the mid-1990s, ownership inflation was slightly higher; rental inflation has been slightly higher since then. And do these differences accumulate? The graph below shows the levels of these CPI sub-indexes: By definition, they start at the same level in 1982. Ownership became 10% more expensive than renting (compared with their relative costs in 1982), but now they are even again.
How these graphs were created: Search for “CPI rent,” select the two monthly, seasonally adjusted indexes for primary residence, and click the “Add to graph” button. That’s the bottom graph. For the top graph, select as the units “Percent Change from Year Ago” for both series.
Suggested by Christian Zimmermann
View on FRED, series used in this post: