More Than Ever It Makes Sense
to Buy Versus Rent
Nearly a full third of households are still renting. If you're one of them, you could be paying a hefty price.
Before talking about purchasing a house, it's important to note two things. First-and this is extremely important - the housing market is very localized. So I am writing this based upon our real estate market here in the Central Valley of California. The data indicates that we are at the bottom of the market. The lowest median sales price in the last decade occurred in April of 2009. Since April the median sales price has increased, granted at a very modest pace.
Second, home prices are tied to employment. For example, if someone feels like their job is in jeopardy, it might be enough to stop them from making a move. Given the latest unemployment numbers that are hovering around 17.00% it may not feel like it is the right time to buy. The reality is no one knows with 100% certainty that their job is secure. You still have to live somewhere and in many cases, monthly payments for a mortgage are less than rent.
Let's look at an example...
Median Sales Price $140,000.00 (StanislausCounty, Dec. 2009)
Loan Amount: $137,464.00
Mortgage Payment: $985.13*
(prin., interest, taxes and insurance)
Average Rent 3 bed home: $1,050.00 (StanislausCounty, rentometer.com)
# of 3 Bed Homes on Market 656 (StanislausCounty, Jan. 2010)
*Based upon FHA 3.50% down payment and interest rate 5.00% APR 5.899%
With convenient down payment options still available for qualified buyers, very affordable home prices and low interest rates, owning verses renting can actually save you money every month.
The benefits of home ownership are considerable. Because the mortgage is being paid down each month, equity is being built. After 5 years, the $137,464.00 mortgage would be reduced to $126,010.00, adding $11,454.00 to your net worth! This net worth accumulation is not factoring in any potential appreciation. Let's take that same 5 year period and assume a modest appreciation rate of 3.00% annually. The value after 5 years would be $162,299.00 an increase of $22,299.00.
Another advantage of homeownership is greater take home pay from your paycheck. Instead of waiting to file for the tax benefits derived from your new home purchase, you can simply adjust the amount of your withholding. This allows you to have less tax withheld from each paycheck and more in your pocket. In essence, you are taking your tax refund as you go instead of letting Uncle Sam hold it all year, interest free.
Visit www.irs.gov and use the IRS withholding calculator. This very handy tool can quickly show you the impact that a change in withholding will do to your net paycheck. Remember to balance this with the expected refund and it is always a good idea to check with your tax advisor.
Don't forget about the $8,000.00 first time home buyers tax credit. All transactions must be closed June 30, 2010 to receive the tax credit. Move-up buyers are also eligible for a $6,500.00 tax credit. Check with your tax advisor for details.
Don't fall victim to the national headline hype. Talk to a professional who understands your local market. And remember, buying a home is a big step, but it is almost always one in the right direction.
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