As the President’s First Time Home Buyer Credit and its extension covering repeat home buyers draw to their close, and as mortgage rates start to rise, the question of whether it is financially advisable to buy a house or to rent one has become important again. Most financial advisers suggested renting when house prices were sky high, but that is set to change following much upheaval in the housing market.
In a large percentage of housing markets in the US, rental has always been a financially more viable option in the long term as opposed to purchasing a home. Prime areas like San Francisco, Phoenix, Southern California and Las Vegas have traditionally seen most people preferring renting. The housing crash has changed the equation somewhat. Some locations have seen huge declines in house prices, which is making purchasing a home a more lucrative option.
However, the trend is not uniform across the markets and prices in some locations have been relatively unaffected by the downturn. With the effects of the crash on pricing remaining uneven across locations, the purchase option is better than renting only in some areas.
The New York Times recently brought out an analysis of prices vs. rents in major metropolitan locations across the US. The analysis showed that in some of the major housing markets like Phoenix, Las Vegas and South Florida, buying a house is beginning to make more financial sense than renting.
San Francisco, Portland, and Seattle are some areas where buying is still a very expensive affair, and unless you can afford huge mortgage payments, you may have to stick to renting. New York and Los Angeles are two areas where wealthy buyers are now taking advantage of low prices. Again, unless you have huge savings or you have a very high income, you may find buying unaffordable in these cities.
Prices and rentals in locations like Indianapolis or St. Louis have remained unchanged for the most part, so in these areas, your decision should only be influenced by the mortgage rates.
The fact that tax credits will end this month has pushed up demand for home sales. The subdued interest rates are adding their bit to encourage buying. And if you have always dreamed of owning a house, this could be a perfect opportunity to take advantage of the conditions in the housing market and the overall economy, and strike a great deal.