The Buy VS Rent Decision
It seems to me like a lot of folks I talk with -- especially first time home buyers -- are wrestling with the choice of continuing to rent or making the leap into purchasing their first home. Of course, many are encouraged to buy due to the $8,000 first time home buyer's credit that is offered by the government.
For many people, however, the $8,000 incentive is little more than a complicating factor in this troublesome decision.
So, here's some information that might prove beneficial in making an informed decision.
To make the call as to which is the right path to take, experts agree that people should rely on the price-to-rent ratio. This ratio is determined by dividing the average cost of purchasing a house by a year's worth of rent payments.
Economy.com has indicated that the ratio stood at 24.7 in 2005 but has since fallen to 17.4, probably due to falling real estate prices in most cities across the nation. The historical average since 1986 is 16.5, so today we're pretty close to the average ratio. Let's take today's ratio of 17.4. This means that individuals could spend 17.4 years renting a property for what it would cost to buy a house.
Dean Baker of the Center For Economic And Policy Research reminds people that the price-to-rent ratio should not be the only factor in making the choice to buy or rent. Baker says renting is probably the right path if you plan to move in a few years, or if renting allows you to live in a neighborhood where home ownership might be too expensive.
I hope this is of some help to those who are struggling with this kind of decision.
For many people, however, the $8,000 incentive is little more than a complicating factor in this troublesome decision.
So, here's some information that might prove beneficial in making an informed decision.
To make the call as to which is the right path to take, experts agree that people should rely on the price-to-rent ratio. This ratio is determined by dividing the average cost of purchasing a house by a year's worth of rent payments.
Economy.com has indicated that the ratio stood at 24.7 in 2005 but has since fallen to 17.4, probably due to falling real estate prices in most cities across the nation. The historical average since 1986 is 16.5, so today we're pretty close to the average ratio. Let's take today's ratio of 17.4. This means that individuals could spend 17.4 years renting a property for what it would cost to buy a house.
Dean Baker of the Center For Economic And Policy Research reminds people that the price-to-rent ratio should not be the only factor in making the choice to buy or rent. Baker says renting is probably the right path if you plan to move in a few years, or if renting allows you to live in a neighborhood where home ownership might be too expensive.
I hope this is of some help to those who are struggling with this kind of decision.
-30-
posted by Terry Ward at 4:27 AM
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