Tuesday, July 8, 2008

The age old question, which is better... to rent or to buy?




66 cities where buying makes sense
Falling prices make homeownership increasingly realistic in some areas. Just don't expect to make a fast buck. By Marilyn Lewis, MSN Real Estate
More on MSN Real Estate




2008 MSN Real Estate best bargain markets
Your home buyer's checklist
Tell us: Which is better — buying or renting?
With house prices falling around the country, many renters are wondering if this is the time to jump in and score a deal.
The answer, of course, depends on where you live. In much of the U.S., you're better off buying despite falling home values, say new data compiled by the National Low Income Housing Coalition and the Center for Economic and Policy Research.
Of the 100 most populous metro areas, 57 have average three-bedroom rental costs higher than the cost of a 6% loan for a typical low-priced house, including Little Rock, Ark., and Akron, Ohio. (The study's authors defined low-priced as 75% of the area's median.) Those renting two-bedroom apartments would be better off buying a low-priced home at a loan rate of 6% in 24 of the 100 largest metro areas.
Of course, a crucial component for renters looking to make the leap is credit history. A prospective buyer with credit worthy of a 6% mortgage will pay a third less in monthly payments than someone who qualifies for an 8% loan – in many cities that can be a difference of hundreds of dollars and push them over the line to where renting actually makes more sense. (For more on the costs of renting versus buying, see "34 cities where it’s still better to rent.")
Even more interesting to potential homebuyers is the chance to build equity. Here, too, there's good news for many major metros. In 66 of the top 100 markets, you'd be in the black in four years should you buy a low-priced home today.


You'd do best in McAllen and El Paso, Texas, where you could build roughly $90,437 in equity with a 6% loan, and just shy of that with a 7% loan. In Syracuse or Buffalo, N.Y., you'd stand to make close to $80,000. In these slow-growing, smaller cities, prices never got run up to the sky. Now, homes are still affordable. And most importantly, the prices aren't likely to come crashing down.
It’s a home, not a get-rich-quick schemeSafe doesn't mean profitable, however. With prices falling in many markets, housing is too risky these days to expect you'll make money on a house deal, experts caution. The object now is to avoid losing money.
"Don't expect these markets to take off," says Danilo Pelletiere, research director for the National Low Income Housing Coalition and co-author of the study, "Ownership, Rental Costs and the Prospects of Building Home Equity."
"The housing boom passed them by because, in many cases, not much is happening in these towns."
Buyers should look at the purchase as a conservative investment that's unlikely to pay off like an oil-patch scheme and may even lose value, Pelletiere, says. Base the decision on more than profit, on intangibles like the chance to build stability, to join a community, to enjoy a neighborhood or love living in a particular home.
"I wouldn't want anybody to interpret this data as saying here's where you should put your money," Pelletiere says. "What I am saying is, if you want to put your money into a home, these are the cities where owning makes sense."


Indianapolis-Carmel, Ind.
$49,520 - 6%
$48,330 - 7%
$47,300 - 8%




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