Is it true that it is currently better to rent than to buy - due to the economic instability...still so many layoffs..?

Asked by India Long, Plymouth, MA Thu Jul 14, 2011

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Jessica, , Virginia
Wed Jul 20, 2011
An Unbiased Look at the “Rent vs. Buy” Argument

According to the Wall Street Journal: “Most [Rent vs. Buy] calculators figure that if prices are more than 15 times annual rents, then a market favors renters; under 15 times, buyers”.

Unlike what many articles will lead you to believe, the decision to buy a home stems much deeper than a simple math equation. If, according to this equation, your market is favoring buying to renting this should be viewed as one of many reasons to buy a home, not THE reason.

Why buy?

If steadiness is important to you, owning a home is the way to go. Unlike rent a fixed rate mortgage will be the same month to month year after year. You will always know what tomorrow brings. Along the same lines, homeownership grants you control over things like decorating and pets.

Why rent?

If you are not sure where you will be, geographically, in the next 5 years renting may be best. The financial benefits of owning are home are typically awarded to those who stay in the home for 5+ years; so renting grants you more freedom and mobility than home ownership. Typically one can afford to rent in an area in which they could not afford to buy. For this reason renting can allow someone to live either in a nicer area or closer to the city.

If you choose to rent for the long term, the money saved (in lieu of a down payment) can be invested in other places that may have a quicker return on investment than the purchase of a home. However, renting can be beneficial to a soon to be homebuyer as well. Renting can grant you time to save money or to fix your credit score. Putting down a larger down payment or building a better credit score can save you far more money than jumping into the housing market too early.

The Full Text has lots of link to other helpful articles . See link below
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Dp2, , Virginia
Thu Jul 14, 2011
One could make a compelling case for both options.

First, it might make a lot of sense to buy a 2-/3-/4-plex (at a price where the rent from the other units would cover your mortgage and expenses) as a hedge in case you'd get laid off. At least that way, you might be able to still cover your mortgage (assuming that all of your tenants aren't laid off at the same time with you).

Second, it also might make sense to rent, because you're not tied down to any particular house. If you were to get laid off, then you could possibly relocate quicker than someone who owns their home.
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Kevin Vitali, Agent, Tewksbury, MA
Thu Jul 14, 2011
India- That is a very personal question.

Right now the market seems to be stabilizing in many markets throughout Massachusetts though some continue to trickle down. Obviously no one has a crystal ball but most housing experts feel the market is stabilizing nationwide.

Renting is very competitive right now as folks that have lost their home need to rent. This causes rents to rise. When rents start to rise and start to reach what a home would cost to mortgage is what really makes markets stabilize. We also have mortgage rates at an all time low still. As rates rise even if the market goes down slightly it may be more affordable to buy now. Also never try to time the bottom, its impossible.

I think if you are truly buying a home for the long haul 10-15 years plus you won't be dissapointed. If your looking at it short term I fell that would be dangerous. Historically housing over the past 75 years has been the smart choice, remembering over a period of time it does cycle up and down. Buyers of the past 15 years or so have been spoiled.... buy today and sell for a healthyr profit 2 years later. That historically is not normal and a 3-4% appreciation a year is more normal.

I also encourage my home buyers not to look at buying a primary home as an investment. It is your home, it is where you live, it is yours and it is where you will raise your family. The stability your own home offers is very comforting.

So whether to buy a home is very personal and there is much to consider.
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Peter Keane, Agent, Plymouth, MA
Thu Jul 14, 2011
Hi India, depends. But right now rents are going up and home costs (price + interest rates) are going down, precisely because of the economic conditions you mention. Read below a blog I attached for your reference. Also keep in mind that cost is only one reason to buy or rent ... there are of course other pros and cons to each to consider. So that's why I said it depends ... on your personal situation. If I can help further in the Plymouth area, let me know. Peter.

KCM Blog:
After the last five years, more and more people are hesitant about purchasing a home. We definitely understand their concern. However, is the alternative option actually a better choice? Renting in the current housing market might not make good financial sense. Just this week the Harvard University Joint Center for Housing Studies released a report analyzing conditions in the rental market. The study found:
Rental markets are now tightening, with vacancy rates falling and rents climbing. With little new supply of multifamily units in the pipeline, rents could rise sharply as demand increases.
This increase in rental costs is already taking place. In their Spring 2011 Housing Report released earlier this week, stated:
…that rental listing prices across the US climbed 7.4 percent while for sale listing prices retreated 8.8 percent since this time last year (April 2010 – April 2011).
Just yesterday, Trulia released its second quarter 2011 Rent vs. Buy Index. In the report, they stated that buying a home has become more affordable than renting in nearly four out of five (78%) major cities.
”With home prices nearing a double dip and more foreclosures expected to flood the housing market over the next two years, the decision between renting and buying a home across most of the country has clearly moved in favor of buying,” says Ken Shuman, Head of Communications at Trulia. “As we head into the summer buying season, those looking to buy a home should be encouraged by improvements in the market and feel optimistic about their chances of finding an affordable home, much more so than in previous years.”
“Aspiring homeowners should focus their energies on locking down a low mortgage rate sooner than later. While home prices are unlikely to return to pre-crash levels, today’s low interest rates will likely rise thanks to inflation and spikes in the Fed rates,” notes Shuman. “As the government wind downs its role in the mortgage markets higher mortgage interest rates will be inevitable.”
Bottom Line
Though purchasing a home is not an easy decision after what has taken place in the market over the last five years, realize rental prices are about to soar. You should probably take this into consideration when determining your best housing choice.
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Judy Boyle, Agent, Marlborough, MA
Thu Jul 14, 2011
Hi India Long,

I am not sure where you heard that, but nothing could be further from the truth!

With a plethora of homes for sale, many at substantial discounts, there is something out there for every budget. Couple this with the fact that mortgage rates are at historic lows (they actually dropped again this week!) there is a Real Estate "Perfect Storm" going on right now.

If you are wondering if you can take stop throwing your hard-earned money away by renting, I highly recommend you speak to a mortgage counselor.

Best of luck!

Judy Boyle

RE/MAX Signature Properties
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Andrew Adams, , 01915
Thu Jul 14, 2011
Not true at all. There is no one size fits all answer. Each individual is different and as a result the answer will depend on your personal situaton and what is most important to you.

Job stability is certainly something you want, when purchasing a home. Just because the economy is off does not mean everyone is expecting or will get laid off.
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David Burnham, , Washington, DC
Thu Jul 14, 2011
It really depends on your situation and your market. If you are looking for a place for he next two to four years, then yes, you are probably better off renting. On the other hand, if you are looking for a home for the next 10 to 15 years, then it is probably better to buy now and take advantage of the very low rates.
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