When Buying is Cheaper Than Renting

In the 1990s and early 2000s, when the real estate market was “out of control” or experiencing a “bubble” or however you want to describe “on fire”… the big push was to get renters to become homeowners. The pitch was something like “why pay rent and get nothing, when you can own a house for the same money?” And of course it’s implied:  “…and own an asset that you can watch appreciate in value.”

With down-payment assistance programs helping people buy homes with “no money down,” homes sold quickly and often for prices above the listed price. We are seeing similar conditions now, even though most of the down-payment assistance programs have evaporated.

The biggest difference between then and now is that the boom in home sales had a negative effect on rents…

More renters were buying homes so there were more rental vacancies. Rents were dropping.

Today, rents are on the rise in most major cities. According to Zillow, the national average for rents rose two to five percent with the greatest increases in the San Francisco and San Jose areas. Denver saw the third highest increase for a major metropolitan area with Kansas City and Portland rounding out the top five. This brings us to the house pictured in this post:

That 950 square foot house, with just two bedrooms and one bathroom (like many apartments) sold for $160,000.

If you do the math on an FHA loan which requires only a 3.5% down payment and offers a 4% fixed interest rate, then the monthly mortgage payment (including property taxes) would be about $1,016.00.

This property rents for $1,650.

Expect to see and hear mortgage companies and real estate agents pushing, once again, for renters to become buyers!

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