Real Estate Market

Should you buy a home or rent one?

(5/9/2011) - It's time to dust off and crank up that rent-vs-buy calculator.

The housing market is mixed with some areas offering homes to buy that are cheaper than renting. Other markets yield better deals in the rental sector.

Trulia's Second Quarter 2011 Rent vs. Buy Index compares the cost of buying and renting a two-bedroom apartment, condominium or townhouse in the 50 largest U.S. cities and found buying a home has become more affordable than renting in nearly four out of five major cities.

On one hand, the growing level of distressed housing has helped push home prices down by a "double dip" factor to levels not seen in more than a decade. Low mortgage interest rates are also cooperating.

Trulia says buying a home is a better deal in Las Vegas, NV; Phoenix, AZ; Arlington, TX; Fresno, CA; Miami, FL and Mesa, AZ among other cities.

Even with home buying affordability better than it's been in years, unemployment remains high and qualifying for a mortgage is so tough rentals are feeling the pressure of displaced demand.

Renting is a better deal in New York City, NY; Fort Worth, TX; Kansas City, KS; Los Angeles, CA; Memphis, TN; and Seattle, WA, among others, according to Trulia.

The National Multi Housing Council's (NMHC) latest Quarterly Survey of Apartment Market Conditions for the first quarter this year found the "Market Tightness Index," at 90, as high as it's ever been.

The survey polls more than 100 CEOs and other senior executives of apartment-related firms nationwide and found that almost four in five respondents (79 percent) said markets were tighter (lower vacancies and/or higher rents) and -- for the first time ever -- not a single respondent thought conditions were looser.

A reading above 50 indicates improving market conditions, below 50 indicates worsening market conditions.

"These results show the apartment industry continues to do well even though the nation's overall rate of economic growth has slowed. This is driven largely by the increased appeal of renting generally but also by the large number of young people entering the housing market for the first time -- and young people are much more likely to rent than buy," said NMHC Chief Economist Mark Obrinsky.

For those going the rental route, a long term lease that locks in the monthly rental payment is the better deal because demand for rental housing is expected to increase, says Bruce Hahn, president of the American Homeowners Foundation.

"Boomerang kids, children who were forced to move back in with their parents, will be looking for their own place as they find jobs. Most don't have much in savings, and since lenders are requiring larger down payments these days, buying is not an option for most of them," says Hahn.

There's also a multi-generational movement among families and groups sharing to save money on housing purchased or rented.

The demand pendulum will ultimately swing back in the direction of home ownership, says Lesley Deutch Vice President at John Burns Real Estate Consulting.

She says as rents continue to increase and owner-occupied housing prices continue to fall or remain flat, for-sale housing markets will begin to look more attractive. Many tenants simply cannot afford a rent increase, and will choose to downgrade the quality of their housing or take on roommates.

Deutch says, as housing rents rise, housing markets with high single-family vacancy rates provide some competition for the rental sector. States with high vacancy rates include Nevada, Florida, Michigan, Georgia and Rhode Island.

Because the rent-vs-buy calculation varies by locality, consumers need to compare costs where they plan to buy or rent.

Several calculators can help.

Erate.com's "Rent vs. Buy Calculator" is a down-and-dirty quick comparison of rent, insurance, and expected rate of rental increases vs. home buying costs, property tax costs, upkeep costs, insurance and selling costs, but also appreciation. Use this calculator as a starting point, to quickly determine which type of housing is best for you.

Realtor.com's "Rent or Buy" calculator tosses in more variables, including the real estate agents commission, rate of inflation and homeowner association dues (if any) to get you even closer to a real comparison. Use this calculator to hone in on what housing is best for you.

Federal Reserve Bank of Cleveland's "Buy a Home or Rent?" calculator is really a worksheet that provides a host of variables many calculators don't consider. Produced by O. Emre Ergungor, a senior research economist and Saeed Zaman a senior economic analyst, both in the fed bank's research department, this calculator is for those who are financial planning nit-pickers who want to get closer to the absolute rent-vs-buy bottom line.

 

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