Many of us Realtors are often asked whether it is better to rent or buy in the current housing market. The answer to that question is almost always "It depends." There are situations where renting short term probably makes the most sense. For example it may make sense if you are retiring to a different region of the country and are not yet sure where you want to set down roots. It may make sense if you have an employment contract that will probably require a move to another location upon termination.
However, in most other cases, renting right now makes less sense for several reasons. Even though prices may still soften, waiting to buy wouldn't make sense because the cost of owning a home someday, is likely to increase. 30 year Mortgages may soon become more expensive than they are right now and there is some talk about doing away with them altogether. Owning a home is less expensive than renting a home in 72 percent of major U.S. cities and has other benefits besides just the cost. Another reason is that rental costs are about to explode according to some experts.”
Let's take a closer look at the last reason about the cost to rent. It is often said that the cost of anything is based on supply and demand. The number of marbles for sale and the number of marble buyers together create the price for marbles. That can also apply to rents. There is currently a larger demand for rentals right now than before the real estate market collapsed. The economy has forced many families to leave their foreclosed homes and many other buyers are afraid to plunge into homeownership.
At the same time, the supply of available rentals is rapidly decreasing. Apartment vacancy has dropped significantly since the recession, which ultimately drives up rental rates. According to www.calculatedriskblog.com the vacancy rate is back to early 2008 levels and is not far above the 2006 level (around 5.7 percent). Typically as the vacancy rate falls, rents will rise and this will help support house prices. When supply is rapidly decreasing and demand is quickly increasing, prices have only one place to go – and that is UP! That is exactly where rental prices are headed.
Again the bottom line question was, “Is now a good time to rent or should I buy? For most people and in most circumstances it is a great time to buy. You can buy a home today at a discounted price and get a 30-year mortgage at a historically low interest rate. You can set your housing expense for the next thirty years and currently have the tax and other benefits of home ownership. On the other hand, rental costs are poised to increase for years to come. Besides the uncertainty of rent increases, what if the property is sold and you are forced to move? There are many potential issues when renting. What are some of the benefits of home ownership?
We can obviously debate the financial benefits one way or another, but according to www.Realtor.org studies show that homeowners have a greater stake in their community and that they are more likely to vote and are less likely to move. Long-term residents are more prone to volunteer and participate in civic activities. In essence, many studies show home owners make better citizens – they have higher educational achievement (as do their children), lower crime rates and help to maintain a community. Some studies also show home owners are happier and healthier with higher life satisfaction, higher self esteem and perceived control over their lives.
Owner-occupied housing generally is better maintained than renter-occupied housing. Higher levels of home ownership lead to more stable communities by being imbedded in the same neighborhood and community for longer periods. For example, nearly 30 percent of renters moved during 2009, while only 5.2 percent of home owners moved. Right now we could all use a little more stability in our lives and our communities and homeownership just might be the answer for you.
Home owners accumulate significantly more net household wealth than renters. The Federal Reserve Survey of Consumer finances shows this clearly over time. The most recent periodic study in 2007 showed the median net wealth of home owners was $234,200, which is 46 times that of a renter’s net worth of $5,100. Although there has been a loss of household equity since the most recent survey, it stabilized in 2010 and home owner equity today most certainly remains significantly larger than renter equity.
If you think you might be interested in pursuing home ownership, talk to a local Realtor who can help you make the best choice for you.
Questions or comments can be made to Kerry Suess at firstname.lastname@example.org.