Plunging prices make renting a home less smart
Filed under: Real Estate
In the heady days of the housing bubble, it was often smarter to rent a home than it was to buy. That was because home values were so inflated that the monthly expenses of ownership were much, much higher than rental expenses. The only way for homeownership to make sense financially in some over-heated markets was for the market to bail speculators out with continued good returns. Obviously that didn't happen.According to Green Street Advisors, a real estate consulting firm, mortgage payments averaged 66% more than rent payments at the housing bubble's 2006 highpoint. Bow that number has fallen to just 24% -- making mortgage payments just 24% higher than rent payments. That's the narrowest gap since 2001, and it's below the 18-year average of 26%. According (subscription required) to the Wall Street Journal, separate data from Moody's suggest that the relationship between mortgage payments and rental rates is coming back into a more historically normal range.
Of course these numbers are all averages, and really have nothing to do with your specific situation. Generally, the less expensive home you buy the more favorably it will compare to renting.
There are a number of calculators designed to help you decide whether you should buy or rent but the best one by far is this one, put together by the New York Times.
Reader Comments (Page 1 of 1)
2-26-2009 @ 9:04AM
Donovan said...
No doubt this post is compliments of the NAR (National Association Of Realtors) However the post fails to mention that ANY potential buyer has better have PRISTINE credit, a FICO score of at least 750 or higher. And a minimum of 20% with most lenders now requiring 30% down. With the new amended lending rules and regulations banks have now imposed. The majority of buyers WILL NOT qualify for the lowest mortgage rate available. And keep in mind, if you apply for a mortgage. The application fees with most lenders are NON REFUNDABLE.
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2-26-2009 @ 9:59AM
shelly said...
Renting vs Buying.
Lets see. When renting, the landlord pays the property tax's and insurance. In many cases the water/sewer, heat and garbage are included. The landlord is responsible for all and any major costly repairs. Plumbing, HVAC, roof, electrical, etc.
Buying on the other hand. The home owner is totally responsible for paying property tax's/insurance, all interior and exterior repairs, lawn care, all utility bills, association fees that may apply for many town home and condo dwellings. So, depending on your property tax's. One needs to budget at least an additional $1,000 a month over and above the actual mortgage payment. And be financially prepared for any unforeseen major repairs such as HVAC, plumbing, electrical, and roof.
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2-26-2009 @ 10:03AM
Chris said...
DONOVAN.......KUDOS, my exact sentaments, and a person has to be employeed. If someone can qualify today to buy, they must be responsible(having 20-30%down). In today's economy the risk of losing that 20-30%, because of job loss, and other unknowns is extremely HIGH. On a $200 K home that is a min. $40K down. More than just a month's pay for most.
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