Should I Buy or Rent?

Are you fortunate (or unfortunate) enough to be on the move in 2011?  If the answer is yes then you’ll eventually have to consider whether or not you want to buy.  And if you don’t want to buy then is renting really the better option for you?  Here are just a few things to consider when making your decision…

– The Market is Still in Flux – The housing market is still a disaster and the end doesn’t appear to be in sight yet.  Seriously, is there ANY good news coming out of the housing market?  HAMP is a disaster, buyers are finding it hard to qualify, sellers can’t sell, short sales are destroying credit scores, and people are actually choosing to walk away from even affordable monthly payments because they realize they’re throwing good money after a bad investment.  Are we done falling or do we have more to go before we bottom out?  I think we’re still years from the true bottom of the market.

– Is Your Income Secure – Can you afford a home?  Better yet, can you afford a home without a job?  Of course you can’t afford your home without a job.  But, in better times it was okay to buy a home and not give your job security much thought because you could sell your home fairly quickly and for pretty much what you needed to get out of it to cover your loans.  Those days are gone.

-Don’t Fall For Tax Incentives – It’s not a good idea to buy a home simply to take advantage of an incentive, such as the first time homebuyer tax credit.  Spend $200,000 to save $8,000…that math doesn’t make any sense, ever.  It’s even worse than cash for clunkers…buy or lease a $30,000 car and get a $4,000 tax credit.

According to Trulia.com, cities like New York, Los Angeles, San Francisco, Seattle, Kansas City, Memphis, San Diego, San Jose, and Boston are more affordable for renters than they are for buyers.  In cities like Atlanta, Houston, Jacksonville, Las Vegas, Phoenix, Charlotte, Miami, San Antonio, Dallas, Chicago, Detroit and Philadelphia it’s either affordable or very affordable to buy versus rent.

The problem, as I see it, isn’t just affordability…it’s the lack of portability.  Do you really want to lock yourself in and buy a home in Las Vegas where, according to personal finance expert Carmen Wong Ulrich, author of The Real Cost of Living, “At one point in 2009, 81% of all homes in Las Vegas, NV were underwater?”  Sure, it’s affordable to buy a home in Vegas but who in their right mind would choose to do so?  Wouldn’t you rather have the portability to walk away, clean and easy, after 12 months if you don’t want to be there any longer?

I recognize that in 30 years you may look back and say “I’m so glad I bought in Vegas in 2011” but that’s a very long time frame and most of us don’t stay put that long.  Plus, you might be spending the next 5-10 years (or longer) living without neighbors considering the number of homes that are bank owned foreclosures.  I avoid that market and others like it.

And finally, why buy while the market is still on the way down?  Why not wait until the market is on the way back up?  If you really think you can time the purchase of your home to be at the bottom of the market then you’re smarter than, well, everyone.  There is no indicator for a real estate market bottom and do you want to know why…because we haven’t seen a real estate market bottom in our lifetime.  But, we can tell when the market has recovered because we can track the price of homes, number of new loans, the employment rate, and the number of foreclosures.  Point being, it won’t be a secret when the market has recovered.

If you want my two cents…I rent!!

John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling.  He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry.

Categorised in: Financial, Getting Credit

This post was written by John Ulzheimer