Renting vs. Buying a Home

The national median mortgage payment is $1,687 a month -- nearly double the median rent payment of $868 a month.

Yet people are often told that buying property is one of the strongest investments they can make.

What is the best option?

"Good Morning America's" real estate contributor Barbara Corcoran says it depends on your needs.

She's the founder of The Corcoran Group, a major New York real estate agency, and she's outlined some of the pros and cons that come along with both renting and buying.

She's also outlined other things you should know about foreclosures and mortgage rates.

Rent Pros:

Mortgage payments exploded during the real estate boom, but rents haven't kept pace, often running half as much as what homeowners pay.

Home prices recently rose to skyscraping heights in cities like New York, San Francisco, Los Angeles and Washington. Rents have not gone up as much.

For a family making the U.S. median income of $46,913, owning the median-price home of $224,739 would eat up 51 percent of its income. Renting would require just 25 percent.

By renting, you gain the flexibility of a lease and freedom from home repairs. You can also invest more money in stocks, bonds, and other assets that could appreciate faster than real estate over the next couple of years.

With real estate agent commissions, loan fees, title insurance, inspections, and all sorts of other costs, your property must appreciate approximately 15 percent just for you to break even and recoup these costs.

If you choose to rent, you can sit out potential drops in market value. In June, condo prices fell 2 percent nationwide and single-family home prices dipped in several markets, including San Diego, Boston and Washington. Who wants to find out they've lost equity just a month into a new mortgage?

If you rent, you can live "beyond your means" in a sense. You can live in a location where you would be unable to buy a home. One broker told us he was renting a house in Santa Barbara, Calif., for $3,000 a month. The house has an estimated market value of $1.4 million. That would give you a mortgage of $6,000 or more per month.

Rent Cons:

Nationally, rents are expected to climb 5.3 percent this year, according to the National Association of Realtors. They could go even higher in strong labor markets like Washington, D.C., where rents have climbed by 7 percent over the last year.

Buy Pros

Homeowners can argue that they're building wealth by investing in an asset that appreciates over time, while renters are throwing money out the window.

Homeowners can also enjoy stability (with a fixed-rate mortgage), tax advantages, and financial security.

Home sales are falling, and in some cities, prices have started dropping, too. In June, condo prices fell 2 percent nationwide, and single-family home prices dipped in several markets, including San Diego, Boston and Washington

As more people take a wait-and-see attitude, they put pressure on home sellers to cut prices. At the same time, as renters swarm the apartment market, they force up rents. This year, rents are expected to climb about 5 percent, and by even more in such expensive markets as Seattle, New York and San Francisco.

Rents in New York City have already climbed 5 percent to 20 percent over the last year.

In San Francisco, where the median home costs about $760,000, apartment rents have jumped 15 percent in the last two months.

Buy Cons

  • 1
  • |
  • 2
Join the Discussion
blog comments powered by Disqus
You Might Also Like...