Home prices have been rising slowly and steadily this year, but according to a recently published analysis from Trulia Chief Economist Jed Kolko, homeownership is still cheaper than renting nationally. Of course, the gap between renting and buying depends on location.
For example, in locations like Memphis, Tennessee; Saint Louis, Missouri; and Grand Rapids, Michigan, it’s over 50 percent less expensive to buy, whereas in Los Angeles, California and New York, New York it’s approximately 20 percent cheaper. In the Santa Cruz area, it’s still 9 percent cheaper to buy than rent.
Therefore, if you're thinking about buying, it may make sense to act now before interest rates rise. According to Kolko, nationally, buying will be cheaper than renting until interest rates hit 10.6 percent, but in the Santa Cruz area, the scales tip when interest rates reach 6 percent. By the end of 2014, Fannie Mae predicts interest rates to be at 4.8 percent, National Association of Realtors and Mortgage Bankers Association predict them to be 5.3 percent, and Freddie Mac predicts them to be at 5 percent.
In order to determine if buying is truly a better option for you than renting, it’s important to understand that Trulia’s calculations are quite conservative. The calculations assume a 4.5 percent 30-year fixed-rate mortgage, 20 percent down, itemizing tax deductions at the 25 percent bracket and 7 years in the home. They also use a conservative annual home price assumption that ranges between 1.7 percent and 3.1 percent, depending on the area.
There are also other important factors to consider when deciding whether renting or buying is the best option for you. For example, it’s important to consider your job security. It’s also important to ensure the home realistically meets your lifestyle needs. There is also some risk involved because the cost of buying versus renting depends on how much home prices rise or fall after you buy. The Trulia model assumes conservative home price appreciation, but, as we all know, home prices can unexpectedly skyrocket or plunge. The good news is that prices are largely predicted to rise slowly and steadily.
Trulia offers an interactive rent vs. buy calculator to help you discover which option is the best for you, but having worked in the mortgage industry for many years and having thorough knowledge of this market, I would love to discuss if buying a home is the right choice for you. Visit me at http://re831.com, or call me at 831.475.5695.
|< Prev||Next >|