So, does that ratio of 13 settle the rent-vs.-buy dilemma for those seeking a Washington-area address? Not quite. (And certainly not if you’re in the market for a house.) Not only should other pocketbook and lifestyle factors carry the most weight in this decision, but various economic clues can lead you to conclude that it’s safer to play the field as a renter. Then again, the economic tea leaves may lead you to conclude that buying can’t wait.
First, consider your lifestyle — and whether it’s really the right time to marry yourself to a specific piece of land and a mortgage payment. Liz Weston, personal finance columnist and author of “The 10 Commandments of Money” (2011, Hudson Street Press, $26), says the recession has changed attitudes toward owning. “It’s not the slam dunk people thought it was,” she said. “People have learned that prices can go down.”
In the Washington area, those prices are down nearly 29 percent from their peak, according to the National Association of Realtors.
Weston says people should plan to live in the same place at least five years — preferably 10 — if they buy a home. “Even with normal appreciation, which is slightly above inflation, it takes five years to offset the costs of selling real estate, considering a 6 or 7 percent commission,” she said.
Then consider your budget. It’s not just a matter of accruing the necessary down payment (at least 3.5 percent of the home’s price, for a loan insured by the Federal Housing Administration). “Homeownership is expensive,” Weston said. Owners need to be prepared to pay for routine maintenance and emergency repairs. “If money is really tight, I’m almost always in favor of renting vs. buying,” Weston said. “If your rent goes up, well, you can move someplace cheaper.” And renters can more freely move to take advantage of better job opportunities, whether across town or across the country.
The fear, of course, is that by continuing to rent, you might miss a good buying opportunity. Home prices were driven down by the housing bust, and mortgage interest rates are near record lows. Plus, federal lawmakers are batting around proposals that might eventually make buying more difficult, increasing down-payment requirements or restricting — even eliminating — the tax deduction for mortgage interest. There is a chance that federal policy could back away from the pro-ownership stance that has been in effect for decades.
Let’s examine the latest economic clues that may guide your decision.