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To rent or buy!

  

  

Better to Buy or Rent?

 

With housing prices down significantly in many parts of the country and interest rates low, it may be an affordable time for twentysomethings to buy that first home.

In some instances, the price of owning can be comparable to renting in the long run. But a lot of uncertainty still remains about the housing market and the economy -- making the decision to buy more complicated.

Nicole Stivers, a 24-year-old who works in public relations in Contra Costa County, Calif., purchased her first home with her fiancé in February. They were able to capitalize on what she calls a "perfect storm" -- job stability, a desire to settle down, a surge in home foreclosures and the $8,000 tax credit for first-time buyers.

Still, the move was not without its concerns. "Would we be able to afford this if we both lost our jobs? Do we have enough for a down payment? Do I have enough for moving? It's really nerve-racking when you're first doing it," says Ms. Stivers.

Here are some questions to consider when deciding if buying or renting is the right choice for you:

How long do you plan to stay in your home? "There are high transaction costs associated with buying and selling" a house, says Dean Baker, co-director at the Center for Economic and Policy Research, so home buyers should plan to stay put for at least four to five years.

The reasoning? The costs for buying and then selling a home -- which can include a real-estate agent's fee, a transfer fee, closing costs, and inspector and surveyor fees -- could add up to about 10% of the sale price, or roughly 1½ years worth of rent. "If you average that over 10 years, it is not that big a deal," says Mr. Baker. "But if you average it over, say two years, you're paying an awful lot of money to own a house for a short period of time."

Can you handle the monthly expense? While a monthly mortgage payment may be comparable in some cases to a monthly rent, there are other expenses to consider.

To get a feel for the financial burden you'll be taking on -- and to see if you can handle it -- "practice" making payments. Each month, set aside projected mortgage and property-tax payments, maintenance costs, utilities and any other home-related expenses into a separate savings account, says Gary Smola, a certified financial planner with financial-educational firm Financial Finesse.

What's the price-to-rent ratio? Home prices have come down significantly in some areas of the country, but "nobody knows what tomorrow's going to bring in the housing market," says Daniel Morris, a certified public accountant in San Jose, Calif.

To determine whether it makes more financial sense to buy or rent in your area, compare home sales prices with the cost of renting a similar place.

Divide the price of the home by the total cost of rent for one year. If the result is more than 20, "I'd be very concerned that the price [of the home] might fall more," says Mr. Baker, and you should consider waiting to buy. If it's 15 or below, he says, "you're probably reasonably safe" with prices holding steady or growing.

What is your job and relationship status? Twentysomethings are still getting a grasp on their futures and a constantly changing lifestyle might require the flexibility of renting.

But "if your career stability is strong, you are comfortable doing what you're doing … and you are committed in some form to your lifestyle," Mr. Morris says, buying a home becomes a more attractive option.

Write to Anna Prior at anna.prior@wsj.com

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Paul Zweben, Licensed Associate RE Broker
paul.zweben@compass.com
Carolyn Zweben, Licensed Associate RE Broker
carolyn.zweben@compass.com
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The Zweben Team is a team of licensed real estate salespersons affiliated with Compass. Compass is a licensed real estate broker and abides by Equal Housing Opportunity laws. All material presented herein is intended for informational purposes only. Information is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to the accuracy of any description. All measurements and square footages are approximate. This is not intended to solicit property already listed. Nothing herein shall be construed as legal, accounting or other professional advice outside the realm of real estate brokerage. New York State Fair Housing. New York Real Estate Standard Operating Procedures.

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