Is it better to buy a house or rent a place, considering the current economy?
October 19, 2008 4:50 PM
Is it better to buy a house or rent a place, considering the current economy?
With house prices falling, maybe it's smart to buy a house. But several sites and reports are coming out now that suggest it's wiser to rent.
More personally, I've just started looking at moving out of the parents house, so this would be my first foray into being on my own. I'm looking for places in or around Brunswick OH. Help please!
With house prices falling, maybe it's smart to buy a house. But several sites and reports are coming out now that suggest it's wiser to rent.
More personally, I've just started looking at moving out of the parents house, so this would be my first foray into being on my own. I'm looking for places in or around Brunswick OH. Help please!
I'm guessing you're just scratching the surface of making this decision. Should you wish to look at this in strictly economic terms, try this. And don't forget the advanced settings.
posted by Kwantsar at 5:09 PM on October 19, 2008
posted by Kwantsar at 5:09 PM on October 19, 2008
One result of the credit tightening is that people are finding it hard to get mortgages unless their credit score is very good, like above 700 or even 750. I don't know how old you are or what your credit situation is, obviously, but it's something to consider. (Mine is lower than 700 only because my credit history is short, about two years.)
posted by Jeanne at 5:11 PM on October 19, 2008
posted by Jeanne at 5:11 PM on October 19, 2008
You probably need more specific financial advice than AskMefi can give. It depends on the prices and forecast prices in your area, your financial situation, how long you expect to live in the place, etc.
posted by winston at 5:12 PM on October 19, 2008
posted by winston at 5:12 PM on October 19, 2008
Remember that there are huge tax advantages to owning a house; this is highly dependent on your particular situation, but mortgage interest is generally deductible. Regardless of who gets into office next, your taxes are likely to increase, and this deduction can be a huge cost savings. Don't just consider the cost of the house, but the long-term tax implications as well.
posted by jenkinsEar at 5:36 PM on October 19, 2008
posted by jenkinsEar at 5:36 PM on October 19, 2008
Separate from the question of whether you're save more money long-term from owning a house versus renting, one factor you should consider is the geographic flexibility of owning versus renting (ESPECIALLY if you're just starting out in your career).
I'm willing to hazard a guess that the amount you'll save by figuring out choosing the cheaper of mortgage payments (w/ tax breaks) or rent would be vastly, vastly swamped by the difference in earning potential between being tied to one specific place at the start of your career vs. being able and willing to move anywhere in the country for the best job opportunities. If there's some reason that you're definitely tied to the area--ailing parents or children in school, say--then it might make sense to figure out the rent vs. buy thing. But don't lock yourself in to a single geographic location now if you're not absolutely sure that you (1) have a great job there and (2) could not possibly lose it over the next 5-10 years.
This goes double if we're really heading into a recession. In that case, you really don't want is to be tied to an area with no new jobs, because no one else will be leaving their job and it will be pretty tough to get hired. If you currently have a job, but your company goes under due to the frozen credit markets or downturn in consumer spending, the last thing you want to do is to be stuck in a place with no jobs, no ability to sell your house (because who will be moving there if there's no jobs?) and no way to pay your mortgage.
posted by iminurmefi at 5:59 PM on October 19, 2008
I'm willing to hazard a guess that the amount you'll save by figuring out choosing the cheaper of mortgage payments (w/ tax breaks) or rent would be vastly, vastly swamped by the difference in earning potential between being tied to one specific place at the start of your career vs. being able and willing to move anywhere in the country for the best job opportunities. If there's some reason that you're definitely tied to the area--ailing parents or children in school, say--then it might make sense to figure out the rent vs. buy thing. But don't lock yourself in to a single geographic location now if you're not absolutely sure that you (1) have a great job there and (2) could not possibly lose it over the next 5-10 years.
This goes double if we're really heading into a recession. In that case, you really don't want is to be tied to an area with no new jobs, because no one else will be leaving their job and it will be pretty tough to get hired. If you currently have a job, but your company goes under due to the frozen credit markets or downturn in consumer spending, the last thing you want to do is to be stuck in a place with no jobs, no ability to sell your house (because who will be moving there if there's no jobs?) and no way to pay your mortgage.
posted by iminurmefi at 5:59 PM on October 19, 2008
I would not agree that the tax advantages are owning a home are "huge." In my case, the difference between the standard deduction and the deduction I would get if I bought a home and itemized is ~ $5k.
I live in SoCal and in many cases, renting is a better long-term solution than buying both from an economic and convenience standpoint.
Re what is the best option right now, your guess is as good as anyone's. Are you trying to time the bottom of the housing market?
posted by charlesv at 6:20 PM on October 19, 2008
I live in SoCal and in many cases, renting is a better long-term solution than buying both from an economic and convenience standpoint.
Re what is the best option right now, your guess is as good as anyone's. Are you trying to time the bottom of the housing market?
posted by charlesv at 6:20 PM on October 19, 2008
I'll leave the rest to others, but a couple things to keep in mind:
Lifestyle: If you don't want to worry about maintenance and trips to the hardware store, rent.
Cost: Do keep in mind that doing your own maintenance costs money, which is already included in your rent. And even if you buy a home where everything seems to be fine, at some point you will outlay a chunk of money for painting / flooring / siding / plumbing / whatever, because nothing lasts forever.
Disclosure: I have owned 5 homes, and now I rent. I loved my houses. I now love renting. There's something for everyone.
posted by Fuzzy Skinner at 6:23 PM on October 19, 2008
Lifestyle: If you don't want to worry about maintenance and trips to the hardware store, rent.
Cost: Do keep in mind that doing your own maintenance costs money, which is already included in your rent. And even if you buy a home where everything seems to be fine, at some point you will outlay a chunk of money for painting / flooring / siding / plumbing / whatever, because nothing lasts forever.
Disclosure: I have owned 5 homes, and now I rent. I loved my houses. I now love renting. There's something for everyone.
posted by Fuzzy Skinner at 6:23 PM on October 19, 2008
I have also heard several economists predict that housing prices will continue to decline for another year or two. Real estate was obscenely overvalued, and so part of this recession is a painful but necessary correction of that market.
Also, if you're getting out on your own for the first time, I would really recommend against buying right away. In addition to the mobility issue (you should really only buy if you are certain you'll be in one place and have the same or more income for the next five years), you might want to ease yourself into living on your own. View paying rent as practice for paying your mortgage. Enjoy having a few years where someone else is responsible if your basement floods or the roof starts to cave.
And don't believe anyone who tells you that renting is equivalent to "throwing money away." I have several friends who bought before they really were ready to, and felt that the extra expense and hassle were not worth it.
posted by lunasol at 6:29 PM on October 19, 2008
Also, if you're getting out on your own for the first time, I would really recommend against buying right away. In addition to the mobility issue (you should really only buy if you are certain you'll be in one place and have the same or more income for the next five years), you might want to ease yourself into living on your own. View paying rent as practice for paying your mortgage. Enjoy having a few years where someone else is responsible if your basement floods or the roof starts to cave.
And don't believe anyone who tells you that renting is equivalent to "throwing money away." I have several friends who bought before they really were ready to, and felt that the extra expense and hassle were not worth it.
posted by lunasol at 6:29 PM on October 19, 2008
Remember that there are huge tax advantages to owning a house
as objected to above, not "that" huge. Middle-class OH taxpayers are in the 30% tax bracket, with a $150K home are going to pay around $9000 in interest, for a $3000/yr tax savings.
My advice is simply don't buy as long as rents are cheap. SAVE SAVE SAVE, and be ready to buy when we're done with the down cycle. This could be a year, or a decade, from now.
posted by troy at 7:17 PM on October 19, 2008
as objected to above, not "that" huge. Middle-class OH taxpayers are in the 30% tax bracket, with a $150K home are going to pay around $9000 in interest, for a $3000/yr tax savings.
My advice is simply don't buy as long as rents are cheap. SAVE SAVE SAVE, and be ready to buy when we're done with the down cycle. This could be a year, or a decade, from now.
posted by troy at 7:17 PM on October 19, 2008
also, if "your taxes are likely to increase" is the case, then, guess what, rents and home prices will be depressed further, unless wages go up.
But anyone who thinks we're looking at middle-class tax increases in the next 2-5 years is pretty much unplugged from reality.
posted by troy at 7:27 PM on October 19, 2008
But anyone who thinks we're looking at middle-class tax increases in the next 2-5 years is pretty much unplugged from reality.
posted by troy at 7:27 PM on October 19, 2008
as objected to above, not "that" huge. Middle-class OH taxpayers are in the 30% tax bracket, with a $150K home are going to pay around $9000 in interest, for a $3000/yr tax savings
No, because if you don't buy a house you still get to deduct $5350 if you're single. So the tax savings in your example would be 0.30*(9000-5350)=$1095.
posted by ROU_Xenophobe at 8:24 PM on October 19, 2008
No, because if you don't buy a house you still get to deduct $5350 if you're single. So the tax savings in your example would be 0.30*(9000-5350)=$1095.
posted by ROU_Xenophobe at 8:24 PM on October 19, 2008
Do you have a 20% downpayment? If not, rent
Are you going to be in the same place (house) for at least five years? If not, rent.
I'm assuming you're fairly young; the critical problem in buying a place is that you will loose mobility (future earning power) and flexibility (you get a perfect bachelor(ette) pad, then meet the partner of your dreams.) Unless both job & dating are solid, rent.
posted by printdevil at 9:18 PM on October 19, 2008
Are you going to be in the same place (house) for at least five years? If not, rent.
I'm assuming you're fairly young; the critical problem in buying a place is that you will loose mobility (future earning power) and flexibility (you get a perfect bachelor(ette) pad, then meet the partner of your dreams.) Unless both job & dating are solid, rent.
posted by printdevil at 9:18 PM on October 19, 2008
No, because if you don't buy a house you still get to deduct $5350 if you're single. So the tax savings in your example would be 0.30*(9000-5350)=$1095
thing is, having the big house deduction opens the door to more deductions, so it kinda evens out or something.
posted by troy at 12:54 AM on October 20, 2008
thing is, having the big house deduction opens the door to more deductions, so it kinda evens out or something.
posted by troy at 12:54 AM on October 20, 2008
What I'd do is figure out what it would cost per month to buy, then for the next year, rent a place, but save the extra money that you would need for a house payment vs rent. Moving out and getting stuff is more expensive than you'd imagine. Also seconding the job opportnities (I did after two years). Finally, getting a roomate can be a great way to save some money and expand your social circle beyond college friends.
posted by ejaned8 at 7:01 AM on October 20, 2008
posted by ejaned8 at 7:01 AM on October 20, 2008
lunasol: And don't believe anyone who tells you that renting is equivalent to "throwing money away." I have several friends who bought before they really were ready to, and felt that the extra expense and hassle were not worth it.
And it's not just about hassle and unforeseen expenses. Mortgages are setup so that you're paying vastly more interest than principal for the first 5-10 years. It isn't until 18.5 years into a 30 year loan that you're paying equal parts mortgage and principal. So rather than "throwing your money away" on rent, you're "throwing your money away" on interest -- you're paying the bank vs. paying the landlord. At least you can deduct the interest, so you're effectively getting a 20-30% discount on that wasted money, but unless you're going to live in one spot for many years -- generally 6-8 years** -- you're losing money by buying vs. renting.
** To get a more accurate timeline, use one of the calculators listed above and balance its numbers with how long you plan to live at that location.
posted by LordSludge at 7:51 AM on October 20, 2008
And it's not just about hassle and unforeseen expenses. Mortgages are setup so that you're paying vastly more interest than principal for the first 5-10 years. It isn't until 18.5 years into a 30 year loan that you're paying equal parts mortgage and principal. So rather than "throwing your money away" on rent, you're "throwing your money away" on interest -- you're paying the bank vs. paying the landlord. At least you can deduct the interest, so you're effectively getting a 20-30% discount on that wasted money, but unless you're going to live in one spot for many years -- generally 6-8 years** -- you're losing money by buying vs. renting.
** To get a more accurate timeline, use one of the calculators listed above and balance its numbers with how long you plan to live at that location.
posted by LordSludge at 7:51 AM on October 20, 2008
This thread is closed to new comments.
That said, there's the rent to buy ratio aspect. Your area may vary.
Nouriel Roubini , the economist of the moment, thinks we have a long recession (two years) coming and another 15% reduction in house prices. You risk buying a depreciating asset.
posted by IndigoJones at 5:08 PM on October 19, 2008