If you're currently renting and have dreamed of owning a home, now may be the perfect time. Trulia.com is reporting that during the month of July, buying was cheaper than renting in 74% of the country's 50 largest cities.
However, in 12% of the cities, such as New York, Seattle, and San Francisco, you could rent a place for less than you could buy one. And in the rest of the cities (14%), it was about even, with renting being only slightly less than the cost of buying.
What's tipping the scale to make buying cheaper than renting? Of course, it's the declining home prices and historically low interest rates are also helping to encourage home buying. Recently, interest rates for 30-year and 15-year fixed have been hovering near 4%. Also, the increased demand for rental units is pushing rents up, making now a good time to buy as purchasing a home is cheaper than renting one in most major U.S. cities.
This is making purchasing a home enticing for those who are planning to stay for several years and have the ability to put down a downpayment of about 20 percent.
Where are the hot buying markets? Las Vegas tops the list. The S&P/Case-Shiller home price index, as reported by CNNMoney.com, shows that prices "have plunged more than 59% from their August 2006 peak."
Other markets where buying beats renting include Detroit, Michigan; Mesa, Arizona; and Fresno, California. All of these are places where the cost of a median price condo/townhouse is approximately seven times annual rent.
And as reported by CNNMoney.com, Arlington, Texas; Sacramento, California; Phoenix, Arizona; and Jacksonville, Florida, "all had buy-rent ratios of eight," according to Trulia.
New York is the highest city to rent a home (of the 50 markets surveyed). And to buy in that city would cost about 36 times as much, pushing the purchase price to about a million dollars.
If you're renting now and wondering is this the right time, it really depends on your particular circumstances. Timing the real estate market is never a perfect science. However, the indicators are strong that if you can afford to buy, today's market certainly offers many good opportunities.
Here are a few things to consider to help you make your decision.
The first is the length of time you'll stay in the home. Moves are costly and purchasing a home requires extra cash for commissions and closing costs. So, if you're not sure you can stay for a while, postponing buying might be the right choice. However, if you've been in your rental for a long time and have roots in your city, there are great deals on homes. It might be the right time for you to start paying your own mortgage instead of paying your landlord's mortgage.
How much downpayment? This is a critical concern. With stricter lending requirements, having cash to put down is a make-or-break factor in purchasing a home. Buyers often have to come up with 20% and that can be a big chunk (or even all) of a person's savings. Also, note that the money usually has to be "seasoned". In other words, the downpayment money can't just suddenly appear in your savings account only days before you decide to buy a home. Ask your real estate agent and loan officer for more details.
The cost of owning a home. Part of the thrill of owning a home is the fact that you own it. That means you're responsible for everything inside and out. Of course, planned developments and Homeowner's Associations may cover some of the outside maintenance but then you'll be paying monthly fees. When considering whether to buy or rent, one of the things many first-time buyers neglect to think about is the cost of maintenance. When appliances break; you, the homeowner, will pay to fix them. No more landlord or apartment manager to the rescue. So, if you think things through and weigh the cost of rent versus the cost of buying, you may find the cost and the increased responsibility are well worth it because along with homeownership comes the pride of making your home yours exactly as you like it.