Rent or Buy?

Various signs point to faster growth after the U.S. economy’s dismal performance in the first quarter. That’s when it nominally grew at a 0.1 percent annual rate, according to the Commerce Department’s preliminary reading.

Increased hiring, as seen in last Friday’s strong jobs report, and consumer spending are among the positive factors now after a harsh winter that’s gotten most of the blame for the poor first quarter. But the housing sector is noticeably missing from the expected rebound.

The U.S. housing market started to rebound from a deeply depressed level in 2009. Among the catalysts were a gradually improving economy and tumbling mortgage rates. The average fixed rate on a 30-year mortgage fell from about 6.5 percent in 2007 to as low as 3.4 percent early last year. Low home prices and low mortgage rates combined to drive a huge improvement in affordability.

But then the rate jumped to 4.6 percent last June, after then-Federal Reserve chairman Ben Bernanke hinted that the Fed would start to taper its monthly bond purchases in the near future. The sharp rate increase coincided with home-inventory shortages that boosted prices, dampening affordability.

The housing market subsequently slowed significantly and hasn’t recovered. In March, existing home sales fell for the seventh time in eight months. Both new-home sales and new building permits for single-family homes were below their year-earlier levels.

Yet the current 30-year, fixed rate has dipped again, to 4.2 percent, far below the historic average. Indeed, home affordability remains at attractive levels in many areas, based on prices and median incomes.

In half of U.S. metropolitan areas, purchasing a home is a better financial decision than renting for buyers who plan to stay in their home for at least two years, according to Zillow. Even in less affordable areas, the so-called break! -even point is well under five years, which used to be considered the standard measuring period.

But broader economic problems could restrict housing growth. Among these are the inability and/or reluctance of younger people to buy a home because of (1) low incomes, (2) uncertainty about future prospects, (3) high debt loads and (4) continued credit standards that remain stricter than they were before the financial crisis.

Despite broad home affordability, the demand for rentals is much stronger than that for purchases. Between 2007 and 2013, the U.S. added a net of about 6.2 million tenants, compared with 208,000 homeowners, according to Zillow. Meanwhile, rents are rising while mortgage interest rates remain low, which helps make buying more attractive for those who want to buy and can afford it.

Apartment vacancy rates continue to decline. As a result, says Capital Economics, a research firm, rents could rise up to 4 percent on average this year, up from 2.8 percent last year. Meanwhile, overall inflation is running at about 1 percent annually, with wage growth also flatlined.

For rent and utilities to be considered affordable, they are supposed to take up no more than 30 percent of a household's income. But half of all renters nationally are now spending more than 30 percent of their income on housing, according to a comprehensive Harvard study, up from 38 percent of renters in 2000.

The buy-rent dynamics are starkly illustrated in the relative share performance of apartment real estate investment trusts and homebuilders. The former are up big. The latter are among the stock market’s worst industry groups.

Here are the largest REITs, based on their market capitalization, and how they’ve done in 2014:

Equity Residential (NYSE: EQR): 19.6%

Avalonbay Communities Inc. (NYSE: AVB): 18.6%

UDR, Inc. (NYSE: UDR): 16.9%

Apartment Investment and Management Co. (NYSE: AIV): 23.7%

Essex Property Trust Inc. (NYSE: ESS): 26.0%

Camde! n Property Trust (NYSE: CPT): 26.1%

Home Properties Inc. (NYSE: HME): 18.8%

Mid-America Apartment Communities Inc. (NYSE: MAA): 20.6%

Post Properties Inc. (NYSE: PPS): 14.7%

Here are the largest homebuilders and their shares’ performance so far this year:

Lennar Corp. (NYSE: LEN): -2.3%

DR Horton Inc. (NYSE: DHI): 0.6%

PulteGroup, Inc. (NYSE: PHM): -10.4%

Toll Brothers Inc. (NYSE: TOL): -7.9%

NVR, Inc. (NYSE: NVR): 6.3%

Taylor Morrison Home Corp. (NYSE: TMHC): -2.4%

Brookfield Residential Properties Inc. (NYSE: BRP): -17.8%

Standard Pacific Corp. (NYSE: SPF): -15.3%

Ryland Group Inc. (NYSE: RYL): -12.7%

Meritage Homes Corp. (NYSE: MTH): -19.1%

KB Home (NYSE: KBH): -12.8%