Buy vs. rent – which is cheaper?
Buy vs. rent – which is cheaper?
According to the latest data gathered by the online real estate company Trulia in 98 of the top 100 housing markets, it is cheaper to buy a home than rent one. The only exceptions to the trend are Honolulu and San Francisco.
In the US, the cheapest real-estate market is in Detroit, where buying a home is only 3.7 times more expensive than renting one. Other similarly beneficial markets are in Oklahoma City, Dayton, Ohio,Warren, Mich. and Toledo, Ohio.
What makes purchasing an estate more attractive? Well first off, in the last couple of years the prices have been steadily falling and mortgage interest rates are at historically low levels, whilst the rents are rising. However, not everyone can afford to get a mortgage, despite the low rates. Moreover, paying a rent makes it harder, in some cases impossible for people to save enough money for a down payment, which is the biggest obstacle to buying a home.
Nevertheless, the situation on the real estate market is a little more complicated that it might seem. There are a lot more factors that go into each decision, than the estate prices and mortgage rates. Housing markets, typically have local submarkets, which means that usually renting in the central area would be more affordable than buying, whereas in the suburban parts, buying would be the better option. Another factor is the size of the estate. In some markets it might be better to rent larger homes, instead of buying them.
The Trulia survey does not take into account home price trends, which are another factor affecting the choice whether to buy or rent. Usually, people are ready to pay more if they expect prices to go up and give them a better return on their investment.
Some experts however, believe that home prices have reached the lowest low in the US and they expect markets to start recovering slowly, which means housing will return to its traditional role of a safety investment. If so, that adds an incentive to buy.
Investing on more expensive markets may be a wise decision and would prove to be safer in the distant future. Areas like Honolulu, San Francisco and Boston have strong long-term growth prospects. They also have little physical space to grow, which tends to keep prices strong. On the other hand, old areas that aren't growing much - while cheap – might not be profitable in the long run.
