The recent rises in asking prices has been outpacing the increases in rents, but home buying still may make more financial sense, a new study shows. Owning a house was found to be 44 percent cheaper than renting, according to the latest study from Trulia that compared the costs of the two.
The study found that owning is less than half the cost of renting in 46 of the 100 largest metros. “Buying a home is cheaper than renting in all of the 100 largest metro areas,” according to Trulia.
One reason buying remains relatively affordable: Rents are rising. The demand for rentals has grown rapidly recently, some of it collateral damage from the housing bust. The growing demand for rental properties coms from former homeowners who lost homes to foreclosure or short sales; unemployed people who were living with family and now are working and can rent; would-be homeowners who want to buy but haven’t got a down payment or can’t meet lenders’ stiff requirements; former homeowners who’ve decided they prefer the freedom and flexibility of renting.
The decision to rent or buy is clearly a complicated one. Here are four factors you need to consider before deciding whether to rent or buy:
Generally speaking, renting is cheaper and has lower barriers to entry than buying a comparable home in the same neighborhood. It can come down to the cost factor, and sometimes you need to realize that housing is shelter, not an investment.
On the other hand, apartment rents are on the rise, historically low mortgage rates and depressed home prices have made buying more affordable, and appreciation is a possibility, if not a guarantee, according to Scott Norman, the executive director of the Texas Association of Builders in Austin.
“If you can qualify for a loan,” he says, “it makes more sense from a dollars-and-cents standpoint to purchase a home and be developing equity and increasing your net worth.”
Moreover, some communities have very little rental housing, which means buying might be your only option. Furthermore, if demand for rental housing is high in your area, it likely makes more economical sense to buy.
2 Your Timeline
If you’re planning to move within a few years, you might not want to incur the costs of buying a home. But if you intend to stick around, buying can make more sense. If you’re going to stay in a community where you want to raise a family and beyond, the balance leans in favor of homeownership. Still, the decision should be a personal one, and old rules of thumb — that you should buy if you plan to stay more than five years, for instance — no longer apply.
Not only could buying a home limit your ability to cut your housing expenses, you may not be able to pursue housing opportunities farther away if you get transferred or lose your job. While the market is now improving, selling a home has been especially difficult in recent years. Further, if your home has declined in value, you may have to come up with the difference in funds just to sell. Picking up and moving to another home or city can be far more difficult for homeowners.
When you buy a home, you don’t have the same flexibility and mobility that you can get from renting. That’s a huge consideration when you’re deciding whether to rent or buy.
4. Readiness for Homeownership
Many people enjoy keeping up their homes. Yet home repairs, landscaping and occasional improvements are costly and time-consuming. Many people buy fixer-upper homes that they perceive as good values, only to realize later that they don’t have the time or money to make the upgrades.
On the other hand, as a homeowner you have the freedom to make changes in your home, such as remodeling or adding on. You can enlarge or rennovate rooms to suit your own taste and preferences. If you have children, they will find stability in knowing that they might not have to change schools, which can be traumatic for younger children. They won’t have to make new friends, and a sense of place becomes very real to them.
Once you consider these factors, you should be closer to making a wise decision about whether to rent or buy. Dave Thompson Realty specializes in buying and selling homes throughout Southern Illinois. If you are ready to buy, give one of our agents a call today!