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Posted 11 years, 8 months ago at 1:31 pm. Add a comment

Home Economics {Buy vs. Rent Equation}

Owning a home is so much the American dream that buying always seems like a no-brainer. But you could be better off renting right now. Here are three reasons why:


* Homes won’t appreciate the way they have been. According to the National Association of Realtors, the median price of an existing single-family house was $206,000 in May; a year ago the median price was $222,700. But a lot of speculation still needs to be wrung out of housing. Lewis Goodkin, of Goodkin Consulting, a Miami real estate research firm, expects it will be a couple of years before prices bottom out and houses resume the 6 to 7 percent annual appreciation that was characteristic before the recent bubble. “In this kind of market there will be better value or more favorable conditions later,” he says.


* Financing is harder to get. Rates on 30-year fixed mortgages are running close to 6.5 percnet, but when the subprime market blew up last summer, banks also began tightening their credit standards. Says Manhattan real estate agent Alison Rogers, author of Diary of a Real Estate Rookie: “The level at which you would be considered an A borrower and therefore qualified for the most competitive rates went up roughly 50 points on your credit score.”


*Renting is cheaper. Between 1996 and 2006, real rents increased only about 4 percent, according to Yale University economist Robert Shiller. Meanwhile, the ratio of home prices to annual rental costs, which was 15 times in the 1990s, is now averaging around 20 times or higher. And there are additional expenses of buying that never make it into this equation, like closing costs, points, property taxes and insurance.

Of course you will want your own home someday. But until then rent, and use the money you are not spending on a house or condo to pay down debt and improve your credit score, or to accumulate a substantial down payment, so it will be easier to buy one when the time is right.


by Julie Connelly.

from Metropolitan Home, October 2008

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