With low interest rates, growing home sales and rising real estate prices is now the time to rent or buy?
“It’s the old debate,” said Wendy Forsythe, executive vice president and head of global operations with Atlantic & Pacific Real Estate, a full-service real estate brokerage with offices in 22 states. “Rent versus buy, buy versus rent. Pick any market and you can always get arguments that support one view or the other. In the end the real tipping point is one of personal preferences, what works best for the individual.”
But what are those arguments? And which do you find most compelling?
It’s Time to Buy
U.S. home prices peaked in 2007 but recently there have been signs of recovery. The National Association of Realtors says that existing home prices rose 9.4 percent in July when compared with 2011, while re-sale activity grew by 10.4 percent.
At the same time three other trends also suggest that real estate will be more in demand: First, interest rates are below 4 percent at this writing and not far from historic lows. Second, little replacement real estate is coming online — new single-family home construction remains at half the level seen in 2007 according to the National Association of Home Builders. Third, since 2007 the population has increased by nearly 10 million people.
The combination of low prices and bargain-basement mortgage rates means that affordability is high: Buyers in many cases can now qualify for properties which may have been beyond reach several years ago.
But it’s not just recent numbers which support the case for buying. There are other factors as well. For instance, many owners are able to deduct mortgage interest and property taxes. Generally, when a qualifying primary residence is sold, as much as $250,000 in profits can be sheltered from taxation by individuals, $500,000 with a joint return.
For property investors there’s the ability to also deduct depreciation, management, and other property-related expenses. Investment real estate can be used in a tax-deferred exchange or sold after a year as a long-term capital gain.
In the long-term, homes are often the largest asset held by many families. And getting a fixed-rate mortgage today will be a hedge against steeper housing costs tomorrow if loan rates rise.
“There are also the intangibles of ownership,” says Forsythe. “Ownership is associated with status and stability, a fulfillment of the American dream. For many, owning a home is a mark of success, a way of saying ‘I’ve made it.'”
It’s Time to Rent
For all the attractive aspects of ownership there’s also a case to be made for renting.
In a mobile society, renting makes it easier to move, there are fewer maintenance costs and insurance expenses are lower. In some markets rents are more expensive than the monthly cost of ownership for equivalent properties — but one must also consider the tax breaks associated with real estate ownership and how real estate values might increase over time.
Changing mortgage standards have also made an impact on the rent vs. buy question.
“People with perfectly-good credit and the ability to make big down-payments are renting,” says Forsythe. “In some cases individuals are renting because the loan application process has become too difficult and time-consuming even for borrowers with solid credit and 20 percent to put down.”
Investors
In the raging rent-versus-buy debate there’s one group with a foot firmly planted in each camp: Investors.
On one hand investors are buyers, attracted to the market by today’s home prices and low mortgage rates. On the other, long-term investors want renters.
“Investors are now a big and visible part of the marketplace,” says Forsythe. “Because of the demand for rental properties, vacancies are down and rental rates are up in most markets across the country. However, there’s also another form of demand at work: Investors want not just tenants but tenants who will treat properties well. This gives tenants with good references and strong credit leverage in the marketplace.”
Personal Preferences
“In the end, the decision to buy or rent is not about numbers,” says Forsythe. “People make decisions for whatever reasons they find compelling. As an example, there are tax benefits associated with mortgage financing and yet some individuals buy for cash because they like the comfort of a debt-free home. Others who can afford to buy instead elect to rent because of potential job changes or because the time is not right after a foreclosure or short sale.”
What’s important, says Forsythe, is that the marketplace is now changing.
“With new market conditions this is a good time to review the buy-versus-rent decision,” she says. “Atlantic & Pacific Real Estate professionals can work with people who are trying to determine whether to rent or buy and help them work through the pros and cons of each. We’ve come to understand that there’s no universally ‘right’ decision, just differing choices which work best for different individuals.”
For more information, visit http://www.apreus.com/.
