Better To Rent? Quite Possible!

(CBS)  If you think that it's always better to buy a house than to rent, then financial adviser Ray Martin has a surprise for you. He shares some interesting insight as part of his regular appearance on The Early Show.

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For more and more people, renting may be a better financial option than buying, mainly because the average cost of owning a home has increased at a faster pace than the average cost of renting.

Over the last year, housing prices increased more than 12 percent, while rents increased by less than 2 percent. In some of the bubble areas (such as Seattle and San Francisco), rents have actually fallen.

Also, according to the Census Bureau, rental vacancy rates remain near the record high of more than 10 percent, the highest since they began to collect this data in 1960.

Since before the mid-'90s, the increases in the housing price index and the CPI rent index have tracked closely to each other. But over the past eight years, there has been a significant divergence, where the costs of owning a home have literally sprinted ahead of the pace of increase in rental costs, rising more than 20 percent more.

There have been divergences like this before; in the late '70s and '80s. In both cases, this was followed by periods where the housing price index declined in relation to the CPI rent index.

Typically, the housing price index and CPI rent index move at a similar pace. The Center for Economic and Policy Research explains it this way:

"…if the cost of buying a home rises sharply, as it has in recent years, it would be expected that this would get passed on in higher rents, as owners of rental units attempt to recoup higher purchase prices from their tenants.

"Similarly, if rents begin to fall, or at least not keep pace with inflation, it is reasonable to expect that this would eventually exert downward pressure on home prices. As tenants are able to get better deals on rent, they will be less anxious to rush out to buy homes. Also, potential homebuyers who are interested in renting out housing units would be willing to pay less for homes as rents drop."

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