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Why Renting Works in a Buyer’s Housing Market

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Americans have a lot of questions about the housing market. Has the housing market bottomed? When will home prices start rising? Should I buy or rent? Jack Otter, executive producer of CBS MoneyWatch, explores some of these questions in his new book "Worth It…Not Worth It?" The real estate market presents a conundrum for many Americans looking to sell their homes or become a first-time homeowner. A recent study by The Demand Institute, a division of the Conference Board, found that many Americans, despite having been financially hurt from the housing market crash, still have a strong desire to buy a home. The survey revealed that more than 80 percent of Americans thought buying a home remained the best long-term investment they could make -- even though home prices in February were near October 2002 lows. In an interview with The Daily Ticker, Otter lists the common scenarios facing homeowners and gives his smartest recommendations.

Buying versus Renting

Buying a home today could arguably be one of the best times in recent history, as the interest rate on a 30-year fixed mortgage has fallen below 4 percent. Otter says buying makes economic sense if you plan on staying in your job or neighborhood for at least the next 10 to 20 years. But in this job market, where employment opportunities remain scarce and individuals have to be more flexible, renting would be the ideal situation. "I think it's a great time to buy a house but don't buy a house just cause you think you're supposed to," Otter says. "Buy a house because you're going to live in it for a while." He notes that owning a home is akin to a piggy bank. It should not be viewed as an investment and should definitely not be regarded as a way to become rich.

Older House versus Newer House

Otter unequivocally recommends buying the older home on the market. A glut of existing homes has drastically reduced prices, which could fall further (bad for those trying to sell). Older homes have their perks -- i.e. charm, nice neighbors, a leafy lane -- and drawbacks (i.e. a boiler on life support, need for a new roof) -- but they are the best and most affordable deal for Americans wanting to own. Newer homes do come with shiny, modern appliances but less of them are being built, thus pushing up prices. Construction on new homes dropped 2.6 percent in April and construction permits fell 7 percent last month, evidence that demand in the housing market remains weak and homebuilders are reluctant to break ground on new developments.

Real Estate Broker versus For Sale By Owner

Otter says it pays to hire an expert to sell your home. Most Americans may not have the marketing expertise -- or the time -- to devote to selling their home. Real estate brokers are professionals and have the knowledge, patience and organizational skills to bring in would-be buyers. Moreover, they're good negotiators. Yes, those who decide on the "for sale by owner" route may end up with a little more money in their pocket, but in this tough housing market, real estate broker fees can be discussed and haggled, Otter says.

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