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Rent vs Buy: Do the Numbers Still Add Up for Homebuyers?

Rick Sharga

HOUSTON – (By Dale King, Realty News Report) — The answer to the ancient question, “Is it better to rent or buy a home?” isn’t easy to come by.

So much depends on one’s own personal finances, career trajectory and a complicated formula that takes into account variables like total monthly costs, local median rent and sales prices, taxes and insurance, says Rick Sharga, CEO and founder of CJ Patrick Company, a consulting firm that helps real estate, financial services and technology companies.

Sharga recently looked at the costs to rent vs. buy a home in a study of the 50 largest metropolitan areas in the U.S., using information from First American DataTree.

He created a rent-to-buy ratio in which 1 or more means a consumer would spend more on rent than on home payments, and less than 1 means monthly home payouts would be higher than rental disbursements.

Sharga came up with a number of findings, some surprising. “Based on these calculations, the nation’s top 50 metropolitan areas are almost evenly split – 24 markets presenting better buying opportunities and 26 markets skewing towards renting.”

He did place all four large Texas metros in the pro-rental column.

Houston, he said, “tilted toward being a rental market, with median rents of $1,035 compared to median monthly home payments of $1,161 for properties in the 25th percentile [Houses most likely to be purchased by first-time home buyers]. That gave Houston a ‘rent-to-buy ratio’ of 0.89 (anything below 1.0 tilts towards renting).”

Other Texas metros are even more lease-oriented. San Antonio chimes in at .87 percent. Dallas leans even farther in the rent direction with .81 percent and Austin really rolls out the welcome mat to renters, coming in a .72 percent.

John Nugent, chairman of the Houston Association of Realtors

In Houston, John Nugent, chairman of the board of the Houston Association of Realtors, offered his take on the age-old rent vs. buy question. “The housing market is really tight. People who want to purchase have a hard time. When they find a house, it may have multiple offers.”

Also, “Houston has had issues with flooding, taking some people out of the area, waiting for housing inventory to increase.”

Currently, he said, Houston “has an inventory of about three and a half months. Homes are lacking in the affordable price range, $250,000 to $275,000. Good homes go quick.”

He noted that potential home buyers “try to find a house that suits them perfectly.”

Among others in the real estate business, “The question of buying vs. renting is, in my personal opinion, depends on each individual and their situation,” said Gloria Moorman of Bernstein Realty in Houston.

“Many millennials graduate from college and have student loans to pay off and minimal saved cash to use as a down payment to purchase a home,” she added. “These individuals may lease for a few years to build up savings for their down payments so that they can put 20 percent down to save from paying PMI (private mortgage insurance).”

She added: “Some graduate from school and are fortunate enough to have saved a small amount and are able to take advantage of the lower interest rates that we are experiencing at this time.”

Amy Bernstein

“I agree with Gloria’s thoughts,” said Amy Bernstein. “I would like to add that many are taking advantage of the incredible low rates and buying homes versus renting. Not only are they able to borrow money with minimal money down, but these rates are so desirable and making owning affordable for many.”

The average 30-year fixed-rate mortgage is 3.47 percent, down from 4.37 percent a year ago, according to Freddie Mac.

Bernstein said many buyers “see this as an opportunity to buy, take advantage of these great low rates, live in the property and then when they are ready to move, keep the property and lease it out. For many, this makes desirable investment property.”

How does Texas compare to the nation? Sharga said: “It was interesting that some of the most expensive cities in the country – New York City, Washington, D.C. and Chicago – along with some of the fastest-growing cities – Austin and Denver – weren’t at the top of the renter’s list. That suggests that rental prices in those markets have kept pace with home prices, which reduces the ‘advantage’ consumers might have paying rent vs. paying housing costs.”

“It wasn’t a huge surprise that cities in the Midwest and Southeast were generally more affordable for homebuyers, since home prices have accelerated rapidly up and down the Pacific Coast for the past few years,” said Sharga.

“There were a few surprises, though, like Memphis beingtwice as expensive for renters than first-time homeowners. And California cities – San Francisco, San Jose, Los Angeles and San Diego — are becoming difficult for both renters and owners. Those cities have some of the lowest homeownership rates in the country, and some of the lowest apartment vacancy rates.”

Feb. 18, 2020 Realty News Report Copyright 2020

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