Rent or Buy?

Average selling prices have continued to rebound and mortgage interest rates have increased, so does it make sense to become a home owner instead of a renter? For people with a job and a reasonably strong credit score who expect to live in a home for a few years we think the answer is a resounding YES. But if you aren't so sure, and you finding yourself wondering rent or buy, here are some reasons why now may be the time to settle into a home of your own.

Buying a home is an investment.

Though home prices have firmed, the gap between current average selling prices and prices at the peak of the market in 2005-2006 is wide, suggesting there is still room for considerable appreciation. Though interest rates on conventional mortgages have risen about a percentage point on average from the low point, the rates are still at historical lows. One thing is certain. Rent is rising rapidly and is expected to continue rising at a strong pace, something you should be sure to keep in mind if you are deciding between renting or buying.

We are not suggesting that a purchase decision be based on the investment potential from rising prices, although that may be a factor. We are suggesting that the overall monthly cost of home ownership, driven primarily by price and mortgage financing, can be better than renting and the costs can be locked in at historically low levels versus ever increasing rents.

You benefit from home ownership.

Even more important in our view is the wealth that can be created through home ownership: less from property appreciation but more through forced savings. Owners pay themselves each month instead of their landlord's mortgage. The Joint Center for Housing Studies at Harvard released a study which actually quantifies the difference in family wealth between renters and home owners. It states that renters have only a fraction of the net worth of owners. Near the peak of the housing bubble in 2007, the median wealth of homeowners was $234,600-about 46 times the $5100 median for renters.

We believe that the American Dream of home ownership is alive and well and the emotional benefits, improved quality of life for families, and the wealth building factor should encourage those considering renting or buying to seriously listen to the wake up call of higher rents and consider home ownership.