We all know that hindsight is 20-20, and many people, taken for a ride in the mortgage loan market, are rethinking the value of home ownership. Owning a home remains the quintessential American dream, but the sluggish economy is putting that dream out of reach for a lot of people. To their thinking, they cannot lose a home to foreclosure if they do not own it to begin with- for these people, renting is not just a smart choice, it's the only choice. Here, you'll learn about renting and buying, as well as some of the pros and cons of each.
Owning a home can provide not only status and stability, it can improve credit ratings, build equity, and even provide a tax deduction. With all these benefits, many are having a hard time giving up their dreams of home ownership, as evidenced by the steadily rising housing market. In April, sales of already-existing homes rose almost 8%, according to the NAR (National Association of Realtors). New home sales rose by 15%. However, in some areas, buying a new home is cost-prohibitive, due to tighter lending rules and high home prices.
A website called Trulia.com took list prices for the average cost of rent or ownership of a two-bedroom home in a city, and divided it by the cost of rent for one year. The data was divided into three categories, scoring each city on a price/rent ratio from 1 to over 21. If the ratio is between 1 and 15, it's less expensive to own than it is to rent. If the ratio climbs to between 16 and 20, owning is more expensive, but depending on individual circumstances, could still make sense. Ratios higher than 21 means that ownership costs are much higher than those of renting.
Prices in many areas are still far below their peak, and some think they may have hit bottom- because they have been increasing for the past four months after falling for almost four years. People are taking advantage of the lower prices, and even in a city like New York, some think that now is the time to buy. However, there are millions of New Yorkers who cannot afford to buy, and for them, renting provides a lot of advantages. Quite a few developers built too many homes during the housing boom, and rather than be stuck with empty homes, they've allowed for lower rent and shorter leases. Though buying has its advantages, renting may be a better option until the economy bounces back. For most people, due to a lack of job security, now is not the best time to buy.