April Financial Fitness Challenge--Know When to Buy a House
Before the economic crisis, the mantra was that buying a house was a better financial choice than renting—everyone, it seemed, bought in to that conventional wisdom. Then, as home values tumbled and people saw equity they'd built in their homes evaporate, the smart advice was that renting was the only rational decision.
Lessons learned the hard way
For decades, before the Great Recession, most financial counselors believed that owning a house was the way for average consumers to build wealth. That was true, and still is, if the house rises in value over time—called appreciation in the jargon of economics.
The combination of growing market value and declining loan balance, as you paid off the mortgage loan, assured that you were wealthier owning a house than renting. When you rent, your payments only enrich the landlord—you do not participate in the property's equity growth.
We've learned, though, that housing markets do not always rise. They can stagnate, and they can fall. And that doesn't make buying a house a bad idea—it just means we have to be more realistic about expectations and take more into account before making a decision.
Housing turns the corner
Trulia, the online real estate company, recently reported that it's now more affordable to buy than to rent in 98 of 100 markets. Two standout exceptions are Honolulu and San Francisco (ironically, home to Trulia).
Three facts support the affordability argument:
Ken H. Johnson, a professor of real estate at Florida International University, Miami, told CNNMoney.com that he believes home prices nationally have hit bottom.
Not everyone is cut out for the do-it-yourself aspect of keeping up a property.
Buying presents challengesThose rising rents are a sticking point for consumers hoping to buy—you can't save a down payment if rent is taking an ever larger chunk of your budget. Consider these factors, too, when you face the rent-or-buy question:
The simple question—will it cost more to rent than to buy—does not have a simple answer. You can get a clearer picture by using the New York Times rent vs. buy calculator.
Financial Fitness Challenge
Your credit union money mentors bring you this website and other tools to help you make the most of your financial resources. The Financial Fitness Challenge continues to look at ways you can make better financial habits no matter what condition the economy is in.
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