Rent vs. Buy
According to the US Census Bureau, the national homeownership rate (which compares the number of owner occupied units with non-owner occupied units) is currently at 65.5%. This is down the high of 69.2% during the housing boom, but it is slowly on the increase. With the surge in
foreclosures and short sales over the last four years, many former homeowners have turned to renting, which explains the decrease in the homeownership rate.
However, as these homeowners are rebuilding their credit AND as renters are discovering homeownership is within their grasp, the rate of homeownership will increase even further.
In fact, first time homebuyers snapped up 34% of the available housing inventory in the second quarter of 2012 according to the National Association of REALTORS®. In many areas, asking monthly rent is comparable to a monthly mortgage payment and in some cases even higher.
This is a compelling argument for homeownership.
According to the US Census Bureau, the national median asking rent rate for the second quarter of 2012 was $716. The national median home price for the second quarter of 2012 was $181,500. According to Bankrate.com the current average mortgage rate for a 30 year fixed mortgage is
3.79% (week of 9/6-9/12). Assuming a 20% down payment, the principal and interest payment would be about $675, which is less than the national median asking price for rent. In both the rental and ownership scenario, there are additional expenses and benefits which should be taken into account, but if you are a renter thinking about becoming a homeowner, this may be an opportune time to buy.
|
If you rent* |
If you buy** |
|
|
$716 |
$675 |
|
| Additional expenses to consider(utilities not included) |
Rental |
Property |
*Based on US Census reported “Monthly Asking Rent”
**Based on median home price of $181,500 with 20% down payment and a 30 year fixed mortgage at 3.79%. Principal and interest only. This example is for illustration purposes only and is not a guarantee you will qualify for a loan, nor is it an offer for a loan.
Will these conditions last for long? The National Association of REALTORS® reports that the national median home price rose 7.3% between second quarter of 2011 (when it was $169,100) and second quarter of 2012. Assuming mortgage rates stay consistent but prices rise, the amount a homebuyer will have to pay will increase.
Likewise, if prices stay consistent but mortgage rates go up, a buyer’s buying power decreases. In fact, using the above scenario of a median home price of $181,500, a monthly principal and interest payment jumps from $675 to $851 with a mortgage rate increase of just 2% (to 5.79%).
There arem certainly pros and cons to both renting and buying, but if you have been thinking that you might want to become a homeowner, it is time to run the numbers. Give me a call and I can help you look at the costs and benefits to becoming a homeowner.
Resources:
http://www.census.gov/hhes/www/housing/hvs/qtr212/files/q212press.pdf
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