In the past few years the real estate market has not been in a normal state of equilibrium between rental rates and purchasing price. Post-recession, investors have been able to buy homes at extraordinarily low prices, in part due to the massive inventory of distressed properties, while other people have not even been in a position to buy. However, within the past year housing inventories are down and prices have stabilized. Although there is a good supply of apartments for rent, vacancies are at an all time low and rents have started creeping up, although not much, probably due to slower income growth. While the real estate market continues to normalize, a decision to rent or buy should be considering the following factors and while keeping each individual’s circumstances in mind.
Historic Price Increase On Residential Property Is About 5% Yearly.
According to the National Association of REALTORS, “U.S. Economic Outlook: June 2014”, housing affordability is at a better rate this year than it will be in the future as housing prices are predicted to increase. Since a return to normal rates of annual housing prices is expected to exceed inflation and interest rates on homes are expected to rise, the purchase of a home with the intention to stay in that home for five years or more is a great choice.
Time To Recoup Initial Costs Of Purchase And Obtaining A Loan.
The reason why purchasing versus renting is best if you plan on staying in the home for five or more years is because with the difference in monthly costs it will take more than a year to recoup the cost of purchasing a house and obtaining a mortgage. On average, within two years at current mortgage rates and anticipated housing price increasing, you will begin to realize cost savings of owning rather than renting. A mortgage broker is your best resource to evaluate specific numbers based on your situation.
Flexibility In Mortgage Qualification Is Returning To The Market.
During the years following changes in the mortgage industry established by 2009 it was significantly harder to qualify for a home mortgage. With confidence in price stability returning to the market, lenders now have more flexible programs. If you have assumed or were told you were not qualified for a home mortgage in the past few years, it is time to talk with a mortgage broker to see if your are now qualified for new mortgage products that have emerged this year.
Additional Cost Savings Add Value To Purchasing Your Home.
When calculating the monthly saving of owning rather than renting, include the estimated income tax savings you will gain through the tax deductible mortgage interest. One quick way to estimate the savings is to identify the tax rate you currently pay as a percentage of your gross income. Multiply that percentage times the interest you will pay as a portion of your monthly mortgage payment to estimate the additional monthly savings you will achieve with this deduction. For most people, the savings will come in the form of a larger tax return unless you are able to change your tax deductible status of payroll tax withholding during the year.
There Are Additional Benefits To Owning Your Own Home.
When making additional purchases requiring a loan, you may qualify for a higher loan-to-value ratio and lower interest rates as a home owner. This is especially valuable when taking a loan to purchase big-ticket items like a car. Also, insurance rates can often be negotiated by purchasing homeowners and vehicle insurance coverage from the same company.
Although it is not possible here to estimate the benefits you will receive in your situation, in general it is safe to say that if you are currently renting the probability that buying a home this year you will live in for five years or more will save you significant money during that time. You will also experience tangible and intangible benefits by owning rather than renting if you are able to do so. However, if you are uncertain about where you need to live during the next five years, rental rates are competitive enough to postpone that decision until your future is more certain. For the first year or so, the probability is that either choice will cost about the same when you consider the initial costs of purchasing and obtaining a mortgage.