Is it better to rent or buy?
Is it better to be a renter than a homeowner?
A lot of people who wouldn’t have considered renting are asking themselves that question today. There are several reasons for this:
Home prices are still declining in many markets. And who wants to buy a home only to see prices fall further?
A recent Wall Street Journal survey found that during the fourth quarter of 2010, prices dropped in all of the 28 major metro areas tracked compared to the fourth quarter of 2009. Among the markets with the biggest drops were Miami, Orlando, Atlanta, and Chicago.
The Journal survey also found price declines in areas that had been less susceptible to them in the past, such as Seattle and Portland. Areas where prices are holding up, more or less, include coastal California cities, Boston, and Washington, D.C.
Many job markets are still weak. While unemployment is decreasing, it’s still high. And in a tough job market, renting feels a whole lot safer than buying. In the San Francisco Bay Area, tech giants like Facebook and Google are hiring. But consider this: Google recently said it had received 75,000 job applications—a company record—for the 6,000 positions it plans to add this year.
Buyers are spooked. They’re all too aware of the wave in short sales and foreclosures and don’t want to end up in the same boat.
How to decide to rent or buy
Home ownership continues to offer tax advantages and other financial benefits. Prices are low right now, and so are home mortgage rates (though they’ve been creeping upwards). It’s a great time to buy.
Meanwhile, rents are beginning to rise in some metro areas, including San Francisco, San Jose, New York, and Boston. Some analysts estimate rents will increase about 5.9 percent this year, as more people decide to rent and the pool of available rentals diminishes.
So which way should you turn? The answer, I think, depends upon how long you plan to stay put after your next move.
If you find it highly or somewhat likely you’ll need to move again in less than four or five years, renting is probably your better bet. That’s because if you buy a home now and have to sell it in four years or so, you may not get much return on your investment. You could, of course, rent out your home in order to try and get equity later. But do you really want to be a landlord?
On the other hand, do you feel confident your job, marital, or other situation is unlikely to change for at least five or six years? (Or as confident as anyone can be, given life’s uncertainties?) Do you have enough for a down payment? Are you sure you can make the monthly payments without problem? Is the home priced well on a good block in a desirable neighborhood? If so, these are all good reasons to buy instead of rent.
Ready to do the math? Here are two rent vs. buy calculators to try: