To Buy or Rent?

To buy or not to buy that is the question. People are always wondering if they should buy or rent. The buy versus rent scenario has been an ongoing question.

In today’s market, buying a home is much cheaper than renting. Finally, the answer has never been more obvious. Thank goodness!

It is unusual that buying is the better choice since renting seems to come out ahead most of the time. Mortgage payments, maintenance and transactional costs, and property taxes make buying less appealing. But not anymore!

According to Trulia, the online real estate company, buying a home is more affordable than renting in 98 of the top 100 housing markets. Only in San Francisco and Honolulu is renting the better option. There are several reasons why this trend has taken off. Home prices are falling and mortgage interest rates are at low levels. At the same time, rents are extremely high and on the rise.

According to rent.com, rents have the potential to rise 7% in each of the next two years. Nationally, home prices are down by more than 30%.

However, many people are not in the position to buy a home. Despite lower rates, the greatest barrier to homeownership is getting a mortgage. Saving up for a down payment for a home is difficult for renters paying rent each month. It often pushes renters away from owning their own home.

You are probably wondering what the cheapest buyer’s market is. And the winner is…Detroit. Turns out Detroit is the place to be when it comes to buying a home!  Toledo, Ohio, Oklahoma City, Dayton, Ohio, and Warren, Michigan are other areas where buying a home is much better than renting.

However, you must take into account submarkets within a single housing market. Also, the size of the home is an important factor when deciding to rent or buy. In some markets, renting could be the wiser choice with a larger house. In places like New York, Boston and Dallas, renting is still considered more favorable.

Ken Johnson, a real estate professor at Florida International, believes that home prices nationally have bottomed. He says that “Markets should slowly start to recover. Housing will return to its traditional role of a safety investment.” Basically he is trying to encourage people to stop renting and buy while the market is low. It could end up being a great long-term investment once home prices begin to rise.

So, if you have the money and you are ready for the commitment of a home, then you should take the leap and BUY, BUY, BUY! Home prices are only going to go up in the next few years. If you are thinking about buying, right now is the best time to make moves. In the long run, it is the best investment you can make. Many experts believe that paying off a mortgage is a forced savings plan. You are less likely to spend your savings. 

Overall, it’s a big decision that needs to be thoroughly thought out. 

Decline in Home Prices

I’m sad to report that national home prices have taken a hit. In the fourth quarter of 2011, national home prices fell 4%. While this might not seem like a big deal, it’s the biggest drop in home prices since 2008. The last time home prices were this low was in 2002. It is crazy to think that we could be back to 2002 levels. This ultimately means that signs of stabilization in mid 2011 did not last through the rest of the year.

Even after prices dramatically fell in 2007 and 2008, the declines over the past few years have been relatively moderate. So why have we reversed back all of a sudden?

Once again, the economy and consumer confidence are still very weak. Clearly, it is going to take more time to fully recover. Just because there are a few quarters of stabilization does not mean that the housing market will remain steady.

Right now home prices are all over the place. It is almost impossible to accurately predict how home prices will hold up in the next few years.

Even multi-million dollar homes are experiencing large numbers of foreclosures and major price declines. According to RealtyTrac, America’s richest families are losing their homes to foreclosures at a faster rate than the rest of the nation. It is a common assumption that these things only happen to low-income families. However, more and more upper-middle class households are forced to sell their dream homes. The problem is that selling your home in a high-end neighborhood is very challenging in today’s market. The pool of interested buyers is very limited.

In my hometown, Corona Del Mar, California, I have seen home prices dramatically fall in the past couple of years. Homes, which were once multi-million dollar estates, have significantly deprecated in price. Last year, more than 36,000 homes valued at $1 million or more were foreclosed on.

My family’s neighbor of more than 10 years has been trying to sell his home for the past year. His house was first listed for $3.3 million. It is now listed for $2.3 million. Most real estate agents believe that homes over the million dollar mark are particularly hard to sell. The market for homes over a million is just not there. If the home does not sell soon, he will have no choice but to proceed with a foreclosure.

With the economy in the dump, my family’s neighbor can no longer afford his home nor can he wait around for the home to sell. He owned 2 restaurants that unfortunately did not make it through the recession. He happened to be in the wrong end of the market. Because of this, he can no longer pay his mortgage payments.

It is sad to witness this kind of thing. He was a very hard worker who spent years building his dream house. He had a lot of his savings tied up in his home. Now, he will end up losing all of that.