If buying a home right now is such a great idea, why doesn't Wall Street want to do it?

Renting can be a smart move when buying is so expensive.

Think twice - or even three times - before buying a home in this real-estate market. If you need a new place, give serious thought to renting instead. Even if you really want to buy, at least take a look at the rentals on offer, compare them with what you could buy instead, and do the math.

It will now cost you more than $7,000 extra per year to buy a typical U.S. home than back in February, before the government launched a war against Iran and sent mortgage rates rocketing. Yes, really.

According to some authoritative data, housing affordability may now be the worst ever recorded - worse even than at the peak of the crazy housing bubble 20 years ago.

Meanwhile, renting keeps getting cheaper. Rents have fallen for 37 months in a row, reports Joel Berner, an economist at Realtor.com (Which, like MarketWatch publisher Dow Jones, is owned by News Corp (NWS).)

The theory that buying is always better, over time, is a myth. It depends entirely on the price you pay. Even online calculators have to make assumptions about what will happen to rents, home prices and interest rates over time.

Adjusted for inflation, people who bought a home at the peak of the bubble around 2005-07 still haven't made their money back. The S&P Cotality Case-Shiller National Home Index, the benchmark for home prices, fell a third in real terms in the years after the bubble burst and is still below the peak.

Meanwhile, before buying, you might ask yourself: If buying a home right now is such a great idea, why doesn't Wall Street want to do it? The giant property stocks, real-estate investment trusts that own hundreds of thousands of apartments and single-family homes across the country, have been plunging for months. And when you value them based on the homes they own, you realize that Wall Street thinks the average home is worth about a third less than the real-estate market does.

None of this means renting is always better or definitely better. Your location and circumstances are inevitably important. You may fall in love with a place. But it means that the smart money does the math first.

Let's start with mortgage rates and costs.

Back in February, before the U.S. and Israeli governments attacked Iran, the U.S. mortgage rate was 6% (actually, a smidgen below). Meanwhile the median U.S. home sold for just under $400,000, according to the National Association of Realtors. Assuming you paid 20% cash and financed the rest, as is usual, that would mean the typical buyer ended up paying around $29,000 a year for their mortgage - interest plus principal repayment - over the next 30 years.

Today, mortgage rates are 7.5%, while the median sales price has actually risen to $430,000, says NAR.

Mortgage cost now? Try $36,400 a year. That's $7,400 extra per year, or more than $600 a month. Or, to put it another way, the effective cost of your mortgage has risen by 25% since February. (And most of that increase, about $5,000 a year, comes from the higher interest rate, not the higher home price.)

Average prices should be way down to compensate. If you are negotiating to buy a place, you might want to make that point to the seller - forcefully.

The Federal Reserve Bank of Atlanta recently revealed that housing affordability nationwide was about as bad as at the peak of the infamous housing bubble of the mid-2000s.

That sounds bad enough, but there's a sting in the tail: These affordability calculations were made back in July, when mortgage rates were only 6.5% (and homes were also slightly less expensive). Factor in today's rates and prices, and we are almost certainly in uncharted territory - the most unaffordable U.S. real-estate market in recorded history.

Completely nuts.

Real estate has always gone in cycles, boom followed by bust, and there is no particular reason to think "this time is different," because in finance it seldom is. A massive building boom coming out of the pandemic, when interest rates were nearly 0%, led to a glut and a rental crash beginning three years ago.

Nobody knows when rents will stop falling. We may be near the bottom, and we might not. (If you think we are, look to lock in a good rent with a longer lease.)

Now check out what Wall Street thinks of home prices.

The stock prices of residential REITs - including Vivmark Residential (VMRK), Essex Property Trust (ESS), Invitation Homes (INVH), American Homes 4 Rent (AMH), Mid-America Apartment Communities $(MAA)$ and Camden Property Trust (CPT) - tell a story. These companies are effectively publicly listed huge collections of homes. The biggest, Vivmark, owns 184,000 apartments across the country.

Their stock prices have been plunging for months, as the war in Iran has sent inflation and mortgage rates spiraling upward. Their shares have fallen by somewhere between 20% and 40% over the past five years.

Vivmark's current market value works out at just $250,000 per apartment.

Meanwhile in the real-estate market you'll end up paying on average $370,000 per condo unit, or 50% more, according to the latest data from the National Association of Realtors.

It's not a pure apples-to-apples comparison, to be fair. But, if anything, the comparison favors the REIT. Vivmark typically owns upscale apartment buildings, often in more expensive areas such as on the coasts. But it is widely diversified, spanning from Seattle to the Sunbelt to New York and New England.

Wall Street values other REITs even less per condo unit. The implication: that the fair market value of U.S. homes should be well below, maybe even a third below, what you're paying in the real-estate market.

If I were in the market for a home right now, I'd take that as a big set of hints to look at renting instead of buying.

Oh, and if you rent but you still want exposure to the real-estate market, you could always take that 20% down payment you were saving up and invest it in a bunch of residential REITs. There's even an ETF, the Residential REIT ETF HAUS, although it also owns other stuff such as nursing homes and storage. Vivmark, the largest residential REIT by far, was formed recently by the merger of two jumbo rivals, Equity Residential and AvalonBay. It has a forecast dividend yield of 4.7%, according to FactSet.

If you think that's risky, remember you are buying into a vast collection of (professionally managed) apartments across the country valued at $250,000 each, instead of one property in one location valued at, say, $370,000. (And when you own, you'll be on the hook for purchasing fees, maintenance costs, property taxes and so on. While the seller nominally pays the sales commission, it comes out of the purchase price.)

As always, do the math. But right now renting looks better and better.

-Brett Arends