Written by Justin Greig
You cut back your cable package, paid off your credit cards and totally revised your budget to build up that nest egg. Now you have a decision to make; the decision to rent or buy depends on many factors such as location, hidden costs and the current state of the housing market. Everyone’s situation is unique, so exhaust all of your options before deciding what the best move may be.
According to CNBC.com, 85% of Americans believe that home ownership makes more sense than long-term rentals. But deciding whether to buy or to rent isn’t just a matter of how much is in your savings account. If you’re having trouble deciding whether to buy or rent, take a look at the following list, which will guide you through five of the most important considerations.
Likelihood of a move
If your family or job are likely to lead you to a new destination in the next several years, home ownership may not pay off. But if you think you’ll be staying put and your career path is stable, buying a home may be a wiser use of your money. In some financially depressed areas where the housing market is weak, buying a home is a sound decision if you plan to stay for as little as two years.
Both home ownership and renting come with costs that aren’t always apparent when calculating your monthly budget. For instance, renters will need to pay for insurance to protect their belongings. Even if they find a sensible plan on a site such as Kemper.com, they’ll need to account for this in their monthly budget. Home ownership comes with hidden costs, too, such as association fees and home maintenance. Depending on the age and condition of a home, maintenance costs can quickly outpace the hidden costs of renting.
Location, location, location!
It pays to know the break-even point for the area where you’re currently renting or thinking about buying. A recent study conducted by the real-estate company Zillow shows that more than 200 metropolitan areas and 7,500 U.S. cities found that more than 75 percent of the locations studied, a homeowner will break even after three years or less. In Memphis,Tenn., Miami, Fla., Fort Lauderdale, Fla., and Tampa, Fla., home ownership reached the break-even point after only 1.6 years.
“The Great Recession” is still in full swing, and Forbes.com believes that as long as unemployment rates remain high, the housing market can’t make a full recovery. Market experts believe foreclosure rates are likely to increase and lending standards will tighten, squeezing out some would-be home buyers. If your family’s finances aren’t rock solid, life as renters may hold greater appeal until you can once again be confident in the job market and obtain favorable financing terms.
Home values have risen 0.2 percent within the last year, but the cost of rentals increased by a whopping 5.2 percent, according to Forbes.com. Inflation makes home ownership look like the smarter option, but market specifics vary by location.
The answer to whether home ownership or renting is right for you depends on the specifics of your personal situation — where you live, what your housing market is like, your financial circumstances — and also on the larger American economic picture. Ask yourself some hard questions about your financial readiness to take on the obligation of home ownership, but don’t forget to consider how quickly ownership pays for itself in many locations versus the increasing cost of rentals. By looking at the big picture, you’ll be able to make the right decision.