Buying vs Renting

Published by julia | Filed under Buyer / Seller Tips, Market Trends, Pinellas County Homes, Real Estate

In this economy, Americans are asking this question, “to buy or to rent?” Last year, 2009, was a bleak season for real estate, and people had given up the American dream of owning a house by selling their own homes, or worse, losing their homes in foreclosures.  It may seem that renting becomes the only choice for some individuals, as there is less job security and given the tighter lending security.

In April, more homes in Florida were included in the inventory as more were foreclosed and fewer were sold. Sad thing is, even those who could afford to pay their mortgage gave up their homes in order to stay liquid. Others, however, were uncertain about what to do, and they simply follow the footsteps of those who give up their homes.

Some things should be considered before deciding to buy or rent. First is your ability to pay. If you still have the budget for the mortgage plus other monthly expenses, then it’s feasible to continue paying for the mortgage or to buy a house. For some who have the money, it is even a good time to buy since the market is down and there are many affordable houses available. Also, there are many properties that are foreclosed or on short sale. Those who are included in higher income bracket may also find that purchasing a house can give them tax shelter.

Next, determine whether it is more economical to buy a house or continue to rent at this point. Florida was hardly hit by real estate downturn during the recession. To figure out whether you’re better off buying or renting, check out the ratio of the housing price and the rental rate. As a general rule, ratio 1 to 15 means that it price of housing is not far from rental rate, hence it would be better to buy one. If ratio is between 16 to 21, it means that housing cost is somehow expensive, but this can be rearranged. More than 21 reveals that the housing market is too expensive compared to renting, though it still depends on the purchasing power or preference of the buyer.

In the city of Minneapolis, the price-to-rent ratio is less than 8, making home-buying a favorable choice. The average price listing costs $150,000 while the average annual rent costs only $20,400. On the other hand, cities of Seattle, Portland, Manhattan and San Francisco have high price-to-rent ratio (about 30), making renting a favorable option.

There are no hard and fast rules in making the decision. These are but guidelines that can direct you. However, these figures tell you a lot about the economic side of the market.