Renting versus buying: the age-old question that has confounded homebuyers in recent years.
Depressed home prices and historically low mortgage rates have done little to persuade the majority of Americans to buy the more than 2.5 million homes available for sale last month. Homebuilders have cut back on construction but a glut of accessible homes has stymied a complete housing recovery.
New home sales tumbled 8.4 percent in June from May to a seasonally adjusted annual rate of 350,000 according to the Commerce Department. June's number makes it the biggest one-month drop since February 2011. Sales of existing homes in June fell to their lowest level since October but increased 4.5 percent compared to the same period last year. Housing sales in 2012 are well below the 700,000 seasonal rate needed to support a healthy housing market.
General economic uncertainty and falling home prices have fomented a wait and see attitude with potential buyers, but there are many instances where owning a home has a significant advantage over renting, according to Stan Humphries, chief economist at real estate Web site Zillow. A new report by Zillow found that buying a home beats renting in three quarters of major U.S. metros if a homeowner lives in that home for at least three years. In some of the hardest hit cities — Miami, Phoenix, Orlando, Tampa and Las Vegas — homebuyers can recoup their investment in less than two years.
Zillow analyzed 200 U.S. metros and 7,500 cities to determine on average how long it would take for homeowners to break even, incorporating all possible costs associated with buying: down payment, mortgage and rental payments, transaction costs, property taxes, utilities, maintenance costs, tax deductions and opportunity costs, including inflation and forecasted home value and rental price appreciation. The Miami/Fort Lauderdale region was found to be the best deal on the market since it would take homeowners just 1.6 years to recover their expenses. Homeowners in the San Jose metro and in Mill Valley, Calif — a community north of San Francisco — would not break even for at least eight years.
Humphries says the study dispels the longstanding real estate rule of thumb that owning a home only makes financial sense if one were to live in that home for at least five years. Today's economic conditions for buying a home have never been better, he argues, even for short-term buyers.
"Nationally home prices are back to early 2004 levels," he says in the attached clip, "paired with mortgage rates which are better than they have been in the past 40 years. Affordability is through the roof."
Humphries believes home prices have bottomed nationally and says home values will grow one percent over the next year.
- Real Estate