OWNING VS. RENTING—Which is best for you?

Not always a simple question and answer, but here are some thinking points:

Life style:  Of utmost importance is your particular set of priorities.  If career mobility is high on your list, renting is difficult to argue against.  Usually, at most, you are committing yourself for no more than a year at a time and if job opportunities come up in far-away places, you are in a much better position to pick up and leave on short order than if you owned a home.

Also, if your interests are geared to travel or recreation rather than gardening and home projects, renting is probably better for you.  You can keep your time free to play rather than deal with home repairs and mowing the lawn.

If, on the other hand, you want to put down roots or have pets, owning is much more suited to you than renting.  If you own, you’re in a position to paint or remodel or garden or do lots of things you wouldn’t be able to do to a home or apartment you are renting.  And many people just like the feeling of coming home after work and knowing that this place where you reside is yours to love and nurture.  It’s a feeling of connectedness to place—hard to explain unless you feel it.

Interest Rates:  It’s pretty darned hard to beat today’s interest rates.  In the last 35 years 30 year fixed-rate mortgage rates have varied between 3.5% and 18%.  Yes, for those of you who don’t remember or weren’t around yet, 1981 and 1982 saw rates rise from 12% to 18%!  I was there and in my first year as a Realtor.

Even in the past 10 years, 30 year fixed rates have been as low as the mid 3’s and as high as the mid 8’s, so our current 4 ½% range is rather attractive, regardless of how far you go back for a comparison.  And the prospect for higher interest rates seems rather certain, given a recovering economy and a Fed less likely to keep rates artificially low.

If you want to get in on a very affordable mortgage interest rate, now is definitely the time.

Home Prices:  While prices are beginning to rise in our area, they haven’t come up very far yet, certainly not as high or as rapidly as the newspaper headlines would have you believe.  The problem with a statistical report that indicates that average prices have come up 20% in the last couple years is that it doesn’t necessarily tell you what went into the average.  3 years ago, a slew of foreclosed property sales in the $10,000 to $40,000 made up a large share of the overall market, producing a very low “average”.  Now, people are beginning to make local moves, buying homes that aren’t distressed and are in higher price ranges.  Consequently, the “average” has come up quite a bit—but it doesn’t indicate the rate of increase in actual home values.

This may not be the absolute bottom of the residential real estate market, but it’s pretty close.  Values are still well below 2006 levels and not much above the 2011 bottom.

Rental Rates:  The past 6 years has been a good period for landlords.  Rental homes have been hard to find as fewer people bought homes because they couldn’t, becoming tenants instead.  Consequently, renting has often been more expensive on a monthly basis than mortgage payments.  You don’t have the repair and maintenance costs of a home owner, but the monthly rent is still substantial—plus the money is just plain out the window, no equity gained in the process.

Forced Saving:  Paying the mortgage payment every month is one way of gradually building up equity.  To be certain, it is gradual, but eventually you are in a position where you have equity there that you wouldn’t if you were renting.  This can come in handy when applying for a loan for another reason—a boat or home improvements or a special vacation.  If you’ve got $50,000 in equity, getting a $20,000 loan will be much easier.

Tax Consequences:  For the time being, the deduction that you can take for mortgage interest paid is a definite advantage over renting.  The federal government is, to a real extent, subsidizing your choice to own, so why not take advantage of it?  Tax reformers are always bringing up this deduction as a possible tax provision for removal, so you can’t necessarily count on it forever . . . but it has been around a long time and will be a difficult one for American homeowners to let loose of.

In short, the decision to buy or rent depends mostly on you and your plans and priorities.  If you have further questions, please call or email.  Jared Arnold 269-488-0236, jared@jaredarnold.com.