My how times have changed! As foreclosures rates rise and as short sales increase as a percentage of total sales, home prices continue to fall. Interest rates are at historic lows, Fannie Mae and Freddie Mac continue to offer home buyer incentives, and home values are deeply discounted from their 2006 highs. Bottom Line: It’s great to be a homebuyer right now
For renters the big question is “is now the time to buy or do we wait even longer for a better deal?” Buying a home is certainly a big decision and many renters hesitate to leave the freedom and flexibility of renting.
When buying real estate or purchasing a new home, there are many factors beyond just the monthly payments including: tax consequences, home value appreciation / depreciation, and lifestyle issues. However, in my experience as a Boise real estate agent, I have found that most prospective home buyers make their purchase decision primarily based on monthly payment.
As a result, many renters choose to continue renting–simply because monthly rent payments are a few hundred dollars less than a mortgage payment on the same Boise home. While I agree with consumers’ attempts to save money, the costs / benefits of owning a home rather than renting typically make it more expensive to rent than to buy-when factoring in tax savings and even modest appreciation rates.
Consider this simple rule of thumb: If the home price is 15 times higher than the annual rent for a similar property, it is better to rent. Otherwise, you are going to be better off financially by purchasing the home.
Let’s run through an example using common Boise home prices (as of October 2010, the time I wrote this article): 1. Assumption (Boise Idaho home with 3 bed, 2 bath, 1300 square feet, 5 to 10 years old, typical subdivision lot) 2. Monthly rent ranges from $800 to $1000. Using $900 for this example, annual rent is $10,800. 3. A review of Boise’s MLS (multiple listing service) indicates a typical boise home for sale is listed for $115,000 to $135,000. (Short sales and foreclosures usually representing the lower range of the homes for sale.) 4. $10,800 X 15 = $162,000. 5. This analysis indicates that home prices under $162,000 represent a good purchase opportunity.
Further analysis: A 1300 square foot home for $162,000 would be $124 per square foot. Typical Boise home sales are regularly going for $80 to $110 per square foot-with many deals even lower than that.
Bottom Line: Using this annual rent analysis, homes are a very good value. Although, Treasure Valley real estate prices could drop even further, our real estate prices are way off their highest levels of about four years ago. As reference, in 2006, homes were selling for higher than $140 per square foot.
Author Todd McCauley owns and manages a program called The HELP Program-a curriculum designed to educated home buyers on a variety of topics relating to home buying and real estate investing. Blog http://thehelpprogram.com/?p=1108208-866-4879