Still undecided about renting vs. owning?

THE FORMER IS GETTING MORE EXPENSIVE

It’s an age-old question that gets asked time and again by folks on the fence: Is it better to buy a home or rent? The answer, of course, has always depended on personal circumstances and market conditions.

But lately, many experts say the verdict is becoming more evident. That’s because rent prices are through the roof in many metropolitan areas. Rent values have risen for nine straight months and are up year-over-year in 49 of the country’s top 50 markets, per the most recent Zillow Real Estate Market Report issued at the time of this writing. Looking closer, the median U.S. rent increased 3% on an annual basis to $1,483 a month. Compare that to about $1,372 — the national average paid monthly for mortgage principal and interest plus taxes and insurance, according to an HSH. com report issued in May.

“Rents have continued to rise in numerous markets because of increased demand from in-migration, lack of housing supply and robust job growth in a lot of cities,” says Vivek Sah, director of the Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas. “Meanwhile, growth in home prices is expected to slow down due to abnormal growth reached in the last five years as well as more housing stock available lately.”

The takeaway here is obvious, says Julie Upton, a San Franciscobased real estate agent for Compass.

“Anyone who plans on staying in their property for five years or longer is likely better off buying a home today than renting,” she says.

The reasons are multifold, the pros agree. First, when you purchase you have the opportunity to build equity — the portion you own, which is the difference between what your house is worth and how much you owe on it — which renting doesn’t provide. Second, your home will probably appreciate over time, further padding your equity. You may also qualify for tax write-offs like deductions on your mortgage interest. And you’ll enjoy the freedom to renovate, decorate, and entertain on the property, which a leased unit may not allow.

“You don’t have to worry about a landlord increasing your rent every year, either,” Upton adds.

Dolly Hertz, real estate broker with Engel & Volkers New York City, notes that purchasing a home can be a wise investment of borrowed funds, too.

“Buying allows you to borrow a huge amount of money at a fixed low-interest rate for decades. Even if annual stock market returns are higher than those for real estate, you wouldn’t be able to borrow enough money to invest

in stocks compared to the size of the mortgage you receive,” Hertz says.

Here’s an extreme, though fitting, example: Say you invested $200,000 of borrowed funds in the stock market; that venture may yield, let’s assume, a 6% rate of return annually. But if you borrowed $200,000

and used it as a down payment on a $1 million apartment in Manhattan, you’d have the potential to earn 4% to 6% a year on that $1 million (not just on the $200,000), Hertz explains. (Of course, real estate returns can fluctuate, and there’s always a risk that you’ll lose money.)

The best candidates for buying instead of renting are those with a stable job and considerable savings for a down payment (20% is needed for a conventional loan, but 0% to 3.5% down payment loans are available to qualified buyers through the Federal Housing

Administration (FHA), Freddie Mac, Fannie Mae, the Veterans Administration, the USDA, and select lenders).

“But anyone who lacks the down payment funds, is unsure of the job they’re in, or works in an industry that is cyclical or serviceoriented — which thrives

on a continued robust economy — is better off renting,” Sah suggests.

To help you come to a more informed decision, “speak with a mortgage expert and tax professional, who can crunch the numbers and show you on paper exactly which option is right for you,” Upton says.