Should You Be a Homeowner?

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Despite one of the best buyer’s market in years, Americans are choosing to rent.  

According to MPF research, a Texas firm that analyzes the apartment industry, the rental business is booming. Occupied apartments increased by 215,000 in major U.S. markets in the first half of 2010, the largest increase the firm has reported since it started tracking apartments in 1992. Moreover, the rate of vacancy fell to 6.6% in June, down from 8.2% in December.

While high instances of foreclosures would lead to a surge in the rental market, many industry experts suggest that the decision to rent is a conscious, if sometimes reluctant choice. Americans are motivated to rent due to the mercurial job market, not necessarily a lack of financing.  

“Uncertainty regarding job security has led to an increasing number of individuals preferring the flexibility of renting,” James Korman, who runs rental agency Korman Residential Properties, explains. “Renters can chase career opportunities anywhere they arise without having to sell their existing home prior to seizing an opportunity.”

In fact, economists attributed the recent rental upswing reported by MPF to the improving job market for young adults.  According to Bloomberg.com, employment for 20- to 29-year-olds rose in May and June on a year-over-year basis for the first time since the end of 2007. This demographic isn’t likely to buy because they aren’t ready to settle down.  

As Utah resident Autumn Buys tells MainStreet, “I am 22, and would rather be having my rent each month go toward a house rather than toward nothing, but in my transient situation, heightened by a volatile economy, it just isn't an option.”

More Than Just a Mortgage

Julie Reynolds of Move.com points out that an individual needs to factor in more than just monthly mortgage payments when finalizing their housing budget.  Maintenance, home repairs, taxes and property insurance are all expenditures that prospective homebuyers have to carefully consider. Texas resident Sarah Fulghum, for example, elected to rent an apartment once she realized how high a house’s property taxes would be.

“In reality, it's not rent versus buy,” Virginia realtor Katie Wethman says. “Rather, it's ‘how long do I need to stay in this property before I recoup my transaction costs?’ There's a break-even point for every property purchase.”

This break-even point is often too far away for those uncertain where the current job market is going to take them, especially since the costs associated with buying a house these days extend that point past the immediate future.

“What I pay in rent per year on a one-bedroom apartment is what I would pay per year in property tax on a three-bedroom home,” Wethman tells MainStreet.  “I have less space, but I don’t have a mortgage or home repair costs to worry about.”

To counterbalance such additional costs, the general rule of thumb is to stay in your new home for at least three years to make good on the investment. Reynolds acknowledges the recoup could take much longer (between five to seven years) given the state of the economy. However, she maintains that those who have settled in one area shouldn’t hesitate getting into the buyer’s market.

“Sales prices are lower than they have been since 2005 and interest rates are still low” she says, adding that historically, there’s an emotional value associated with owning a home. “Home ownership is embedded in the fabric of the American dream.”

Should You Buy?

The subprime mortgage crisis made achieving the American dream a little more difficult. However, many realtors say that those who can afford the high down payments, often 20% of the total cost, should seriously consider buying.

“If they can come up with the down payment, I say buy today,” Brendon Desimone of Paragon Real Estate Group in San Francisco says. “If they can't, then it absolutely makes sense to put a plan in place now to save up.”

Overall, the choice comes down to what is important to you.

”Buy a home as the place where your family will live and create a lot of memories. Buy a home if you’re committed to the lifestyle and [are] willing to take on the extra responsibilities that come with homeownership,” California realtor Greg Cook says, before adding, “If your decision is based solely on investment value, rent.”

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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