Better to own or rent? Cost not the only factor

As we live in the aftermath of the burst housing bubble, is it better to own or rent? While individual circumstances differ, some experts advise owning is cheaper:

One year ago, Trulia’s Rent vs. Buy Report, released by online real estate aggregator Trulia, found it was 44% cheaper to buy a house than to rent. Today, the gap has narrowed, due in part to rising interest rates and home prices. The newest edition of the report finds that buying a home is now 38% cheaper than renting. The report compares costs for a seven-year period using five calculations…

Peggy Jennings, a Broker/Realtor with Prudential Great Smokys Realty in Sylva, North Carolina, cites favorable interest rates, good inventory and relaxed loan requirements as good reasons to buy now. “Interest rates are still good. The inventory is improving as more people are deciding it’s time to sell. There’s going to be a lot of good inventory coming up, especially since the foreclosures from a couple years ago are now rehabbed and ready to sell,” says Jennings…

Even though it is a buyer’s market in many areas, homeownership is not the right choice for everyone. A primary consideration is how long you plan on being in an area. “I tell people if they are planning on living in an area for at least three to five years, then it makes sense to buy versus rent,” says Jennings. “When you go to buy,” Jennings says, “you have to pay quite a bit of closing costs. For a typical sale of $150,000 or $200,000, you’re looking at somewhere between $3,500 to $5,000 in closing costs. So it doesn’t necessarily make sense to buy a house and then within two years try to sell it, unless it’s a really awesome market and you think you’ll be able to sell at a good price.”…

Low interest rates, better inventory and relaxed lending standards make now a good time buy a home. In many markets, it is considerably cheaper to buy than rent. Although the Trulia report finds it is 38% cheaper to buy than rent nationwide, it’s important to note that individual markets can vary greatly. For instance, it’s 66% cheaper to buy in still-struggling Detroit versus only 5% cheaper in Honolulu. Even though the numbers show it is generally better to buy than rent, you should always consider the individual market and your own situation and preferences when making the decision to buy or rent.

This analysis is primarily about economic costs of owning versus renting. While this is certainly a large factor in housing decisions, it is not only the only factor. I would think that as long as homeownership continues to have some financial benefit over renting (though it would be curious to know what happens when this gap really narrows – or if it even reverses for some period of time), Americans also have a societal preference for owning a home. Renting is viewed in many places as temporary, housing for transient people who can’t get their act together. Ownership, in contrast, connotes stability, sound financial footing, and taking responsibility for your own property. These assumptions aren’t necessarily fair but this is the American milieu behind the bare economic costs of renting versus owning that also influences how many owner or rental units are constructed in the first place.

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