Should I Rent Instead of Buy in a Falling Market?
In a falling market there is negative price appreciation. Then the costs of home ownership often more than exceed the benefits. In a down market, you can often rent a home for far less than it costs monthly to buy that same home. (In some areas, a house that costs an owner 2000$ a month for mortgage payment, taxes, insurance, and maintenance can be rented for just about half to three-fourths of that amount—$1000 to $1500.)
In short, unless your property appreciates (increases annually in
value), from a strictly dollars-and-sense perspective, you may be bet-
ter off renting temporarily until the market turns around and prices
turn up.
What Should I Do Right Now?
Today, instead of deciding to buy or not to buy, take a few moments
to analyze the market. Check with your local real estate board, as
noted above, about inventories and how quickly homes are selling.
Check out home affordability. Look at interest rates. Learn about
housing shortages. Investigate the market before you make your
move.
Don’t let personal factors influence your investment decision. For many of us, our purchase decision is made strictly with regard to our personal situation, without considering the market. For example:
Reasons to Buy Without Considering the Market
* You’ve finally saved up enough money for a down payment.
* You need a bigger house to accommodate a growing family.
* You’ve moved into an area because of a job change and want a place to live.
* You’ve received an increase in salary and can now afford bigger home payments.
All of these are excellent reasons to buy a house, but it could be a mistake to act only on them. None of these reasons takes into consideration the housing market.
Buying a home is not like buying a refrigerator or even a car. You expect those items to decline in value as you use and enjoy them. But a home is also an investment, probably your biggest. You should look forward to your home going up in value over time.
Therefore, beyond your personal motivation for buying, you must also consider the market.
TRAP—ASK YOURSELF IF YOU SHOULD RENT
Before you commit to a home purchase, ask yourself again if renting, at least temporarily, doesn’t make more sense given market conditions? Only buy when buying makes more sense than renting.
Can I Really Do This?
Keep in mind that all real estate markets are regional. That means that while the market may be up in California, it could be down in Michigan. Down in Massachusetts, up in Arkansas. If you’ve only got one house to buy, national statistics don’t make too much difference. It’s only the market in your area that counts.
And it’s only you who can decide if now is the right time to buy. If you’ve got to make a housing choice, then give yourself every chance of it being an educated decision. Don’t simply say, “Prices are too high to buy.” They may be even higher next year and the year after.
Don’t simply say, “This house is cheap because it’s selling for less than it did a year ago.” It may be worth far less a year from now— and the year after, worth even less.
Look at the facts. To reiterate, check out all of the following:
Checklist for Determining
Market Conditions
Are interest rates low or high, rising or falling?______
Are housing inventories high and rising, low and falling?______ Are listing times getting shorter or longer?______
Are their housing shortages in your area?______
Can more (or fewer) people afford to buy in your______ area? Where are you today in the “seven-year cycle?”______
And always keep in mind Will Roger’s famous quip about real estate, “They ain’t makin’ any more of it!” Even if you guess wrong and buy in a down market, if you can just hang on long enough, chances are you’ll come out smelling like a rose. The long-term prospects for real estate are rosy.
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