Rent or Buy? The Ultimate Real Estate Question
NEW YORK ( MainStreet) That is the urban question: should I rent or should I buy?
Flashback to 2007 and the answer - from just about every expert - was rent, moron, because real estate is hideously overpriced.
Then the crash came, home prices tumbled by 50% or more in many areas and, suddenly, the obvious answer became: buy, because you will never again see home prices so low along with mortgage interest rates that are at historic 3% lows.
But now home prices have crept up by 10% to 20% or more, 30 year fixed rate mortgage interest rates are closing in on 5%, and so now what?
"It really depends on how much risk you are willing to take on," said Jed Kolko, chief economist at real estate website Trulia.com. His opinion: buying today is not "as good" as it was a year ago but, in much of the country. it's still the smart move.
Call today's market a case-by-case situation, where answers vary by specific location and also by individual needs.
Note: in just about all of the country a mental commitment to stay in the new place for at least four years is needed. "If you are not planning on staying put, renting will make a lot more sense," said Kolko.
Another reality: in at least one urban market already, the buy side has gone sour as bidding wars have lifted prices to dizzying heights. San Francisco wears that bullyseye.
"We have a lack of inventory and a surplus of technology companies that are doing well," said Leslie Piper, an expert with realtor.com who also is a real estate agent in the Bay Area. "Buyers have a lot of cash."
Other places where Trulia suggests that buying "is a tougher call" include San Jose and Honolulu.
Those are the outliers, however. In much of the rest of the country, buying still is the obviously better choice per the numbers from the economists.
How this analysis works is simple.
Trulia explained its process in a statement: "To compare the costs of owning and renting, we assume people get a 4.8% mortgage rate on a 30-year fixed-rate loan with 20% down; itemize their federal tax deductions and are in the 25% tax bracket; and will stay in their home for seven years. Under these assumptions, buying is 35% cheaper than renting nationwide, taking into account all of the costs and proceeds from buying or renting over the entire seven-year period."
At SmartAsset.com, the site uses different algorithms and focuses on how many years it takes a buyer to be wealthier than a renter. All in, said site founder Michael Carvin, "we tell around 15% of our users to rent, not buy. For most others, right now, the economics of home ownership are strong."