Is Owning Your Own Home Still Ideal?

October 12th, 2010 - By TheEditor

"Candi Sparks"Economic conditions may be driving more Americans to choose tenancy over the American dream of home ownership. Owning one’s home was at one time an ideal, when renters realized that for the same money, they could own a home. Real estate was thought of as a guaranteed investment. This perception has changed in terms of it not being a safe bet anymore. The theory that buying a home is cheaper than renting is being turned upside down. In some cities it is actually is cheaper to rent.

Renters have several advantages over buyers. Renters do not have to come up with huge down payments and closing costs to get into a home. They do not have to deal with hidden costs associated with buying a home, such as condominium association fees and annual upkeep. Closing costs are factored out. For renters, maintenance fees are included in each monthly outlay, which means there is no need to hire a plumber if the toilet overflows. Greater mobility is available to a renter, who is not strapped into a long term financial commitment in the property. The renter does not leverage the price of a property against the market conditions or be burdened with ongoing mortgage payments before being able to move into a new dwelling.

As reported in the Huffington Post, now may just be a better time to rent than buy in some cities according to calculations made by Trulia, an online real estate data provider using price-to-rent ratios to indicate whether it’s better to rent or buy a home in the 50 largest U.S. cities by population. By comparing the average purchase price of a 2-bedroom home — including mortgage fees and maintenance expenses — with the average rental price for 2 bedroom apartments, condos, and townhouses, Truilia came up with a way to gauge the local market for buyers versus renters. Trulia’s list of cities in which it is cheaper to rent than to buy are New York, Boston, San Francisco, San Diego, Portland, Kansas City (Missouri), Sacramento, Omaha, Fort Worth (Texas) and Seattle.

Green Street Advisors, a research firm specializing in real estate investment trusts, looked at a 19-year average ratio of monthly mortgage payments to monthly rent payments for the 50 largest markets. In 80% of markets, rents are more than 10% below their historical averages, and home prices are too high.

Whether home ownership is more advantageous than renting depends on a number of factors. Market conditions determine the price of a home, but personal needs also come into play. The most common questions to ask in weighing the question include local market conditions for rentals and homes; how long you intend to be in the area and your family status – are you married, getting married, have children or planning to have them; are you looking at it as an investment. In this downturn, job stability is likely the strongest factor in deciding whether to rent or buy.

Candi Sparks is the author of the “Can I Have Some Money?” books series.

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  • http://www.plancorr.com Antoine Orr – Financ

    I would like to offer a different point of view. 1. A person who rents and a person who has a mortgage are in the same boat…both are renting. One is renting from a landlord while the other is renting from a bank. 2. If the interest rate on a mortgage is for example 6%, but the annual home appreciation rate is 4%, the home-ower (not a typeo) annual rate of return is -2%. 3. The idea that a person can build wealth through taking out a loan or going in to debt, has proven to be mathematically flawed. If you would like to continue this discussion, please visit http://www.plancorr.com and click on the "webinars" tab or contact me at (240) 473.1314

    • timm

      I agree with the reply that home ownership is a life style choice. As stated in the article and comments, there are advantages and disadvantages to both owning and renting depending on an individual's perspective and their situation.

      However, I would argue that buying a house as a long term investment is extremely risky and should not be taken lightly. How many people have actually read their mortgage documents and really understand what they say? If you have then most logical people would not want one. If you don't believe me, miss one payment or even be late with one payment and you will understand better. I agree with the previous post that unless you own the house free and clear, you are renting until you pay it off. If you miss a payment, the bank usually starts the pre-foreclosure process by generating a Notice of Default which is a public notice. If you can not continue to pay the note, the bank will eventually foreclose on the property (which is more public notice). I repeat, you do not own your house if you have a mortgage own it.

      Lastly, if you do make all of your mortgage payments, you will more than likely pay for your house three times over ( based on a 30 year mortgage and depending on your interest rate.) Again, I think home ownership is a lifestyle choice. Think carefully and choose wisely

      • timm

        One other thing. The notion of building equity in a house is also flawed. Equity is not real money at all; it's a concept. The only way equity can be realized is when you sale a property. The price you get for a property when you sale it is determined by what someone is willing to pay for it. What someone pays is usually determined by market conditions which does not take into consideration how much equity you think you have in your property. Sure houses are expected to appreciate in value over time but it is not a guaranty that over time you will end up with a profit. Equity is a financial concept and gives prespective home owners a false sense of financial security.

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  • Alfred Edmond Jr.

    This is a very good article. However, it must be understood that when you rent, you are not buying the same thing as when are paying a mortgage, even if you are spending less to rent on a monthly basis.

    When you rent, you are paying for the right to reside in a space for a specific period of time. Simply put, you are paying for use of a space. When you stop paying, you have nothing.

    When you pay a mortgage and other expenses of ownership, you end up with an asset–the equity accumulated in the value of the home, which will reach 100% assuming the home is kept until the mortgage is paid off. While the value of that asset can and will appreciate and depreciate, it will likely always be greater than the zero equity that results from renting.

    Both owning and renting will provide a roof over your head, which should be the top reason for either option. The mistake many made over the past 20 years was trying to treat the housing market as if it was the stock market, seeking to buy and sell homes for profit (like stocks) or treating home equity as an all-purpose piggy bank, instead of investing in a long-term asset.

    If the accumulation of assets–the bottom line when it comes to building net worth (wealth)–is the objective, homeownership still beats renting. The fact that less than 50% of blacks on their own homes compared to nearly 75% of whites is a major underlying factor in the wealth gap facing African Americans.

    Renting is a great short-term solution for certain situations and in certain housing markets, but it is a temporary solution at best. Home equity remains the single largest asset comprising the net worth of most individuals. The fact that the expense of renting may be less on a month by month basis does not change the fact that increasing home ownership by black Americans remains a key to building a foundation for long-term wealth. In fact, unless a person saves and invests the difference between what they are paying in rent and what they would be paying on a higher monthly mortgage payment and related expenses, renting delivers ZERO value from a wealth-building standpoint.

    Renting as a long-term housing solution makes about as much sense as renting a car instead of buying one. It makes sense for some people, in some cases. But generally speaking, it's more beneficially and makes more financial sense to own. For both cases, it's usually best to get the best deal possible, on the best home/car you can find for you and your family's long-term needs, and pursue a buy and hold strategy.

    Remember, when you rent, you're still paying a mortgage. Your landlord's mortgage.

  • Slide Like A Fresh P

    Good article… One thing that needs to be considered also is the fact that "interest rates" are at the lowest they've ever been…

    With that being mentioned, one has to keep in mind the things spoken on in the last paragraph of this in order to figure out whether taking on a mortgage is financially feasible for them or not…

  • http://www.ericadavies.com erica davies

    Love this post !!!!!

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