Some statistics: in 2013, in the 100 largest cities in America, buying a home is on average 44% cheaper than renting. However, this percentage varies; for example, in San Francisco, buying is 19% cheaper than renting, in Detroit – 70%.
Over the past year, the gap between rent and purchase has decreased throughout the Gulf District. Exactly a year ago, buying in San Francisco was 35%, and in San Jose – 38% cheaper than renting. Now the difference is 19% and 24%, respectively. In these cities there is a strong price increase.
In the largest cities, the decision to “rent or buy” depends largely on location. In the New York area, buying in Manhattan is cheaper than renting just 6%, but in the Westchester suburban district, the difference is 53%.
Note: the calculation of the lease compared to the purchase involves a fixed 30-year financing with an interest rate of 3.5%, 20% down payment and 7+ years of living in the purchased property.
How can buying be more profitable than renting?
Three main factors have a real impact on the decision to “rent or buy”: lending rates, tax incentives that household ownership gives you, and how long you stay in your home. Change any of these factors, and buying a home will not look as attractive compared to renting.
• Increasing loan interest raises the cost of owning a home. However, today’s interest rates are quite low compared to rent, so buying is still more profitable than rent, even if the cost of a loan grows by two percent;
• tax breaks reduce the cost of owning a home, as bank interest and property tax reduce your deductions to Uncle Sam;
• Long-term living in your home reduces the relative cost of ownership. The cost of buying, and then selling the house can easily be 10% of the value of the house. Long-term living spills costs for several years, reducing these costs.
Which is better: buy this year or next?
The future is difficult to predict, but let’s consider two of the most important factors: the first is what will grow faster in 2013: real estate prices or rent, the second is what can happen with interest on loans.
Housing prices are likely to grow faster than rent, because the demand for housing remains very high, while the supply is low.
It is quite likely that interest rates on loans will rise next year. No one knows what interest rate strategy the Fed will choose, but it must be noted that they have already begun to creep up slowly. If there is an increase in rates, it will make the purchase of real estate less affordable next year as compared to rent than it is now. It is believed that by this time next year the purchase price may even exceed the rental price in the most expensive cities.
Of course, there are circumstances when buying may not be the best solution either. Suppose you plan to live in your house for three years and do not use tax credits (many homeowners do not do this simply because of ignorance). In this case, at the national level, even with a 3.5% loan, the purchase will be only 9% cheaper than rent. Obviously, buying a property is not for everyone – especially if you live in a more expensive housing market.
In short, the decision to rent or buy depends on many factors, both economic and personal, and this decision should be made only by you.
With this article, I wanted to encourage those who are not sure which option is more suitable for their particular situation – rent or buy – take a pencil and paper and calculate the pros and cons of home ownership, taking into account low interest on loans, savings on taxes, rising real estate prices, but also parallel to the rising cost of rent. I will be happy to help you make this calculation, considering your situation.
I will select and show what is sold in San Francisco, on the Peninsula and in the Walnut Creek area. If you are buying a house for the first time, it is possible that you fall under a program that will save your resources, and I will help you use this opportunity.