A recent opinion piece in Investment News claimed that ‘For young couples, renting may be a better option". I hate headlines like that - they are designed to get your attention, but most people don't have the time to read the article. They end up with this piece of random advice floating around their head that can cause them to doubt their decisions.
Here's a good rule to follow - don't take advice that is generic for everyone! Why? First of all, you don't know the person giving the advice and their qualifications to advise you. Secondly, does it apply to you? Everyone's circumstance is different, so generic advice is never good advice.
So, should young couples rent or buy? Right now, the $8,000 tax credit, the low interest rates and the home prices are all reasons to consider buying.
The Investment News article says the strongest reason to not buy right now is that prices could fall further. This surprises me, as the industry that uniformly teaches ‘Buy and Hold' rather than trying to time the market with stocks or mutual funds turns around and says, "Time the Market!". Waiting for prices to fall further is a sure setup for disappointment. Think about it, even if prices fall further, will rates be higher when that happens? Will the loan program that you can qualify for today still exist then? What if prices fall, but rates are 1-2% higher than they are now?
What if you did not buy a $250,000 house today because you ‘knew' prices were going to drop by another 10% in the next 12 months? Didn't you make a good choice? Well, if interest rates rose from 5% to 6.5% (from where they are today to where they were 1 year ago), your payment on the lower priced home next year would actually be $77 higher than if you bought right now. Couple that with the money you threw away in 12 more months of rent (and for some, the loss of the $8,000 tax credit), and you are talking about a significant difference.
Why not buy now? Don't buy if you are going to move in less than three years. Don't buy if you haven't been stable in your employment for the last few years. Don't buy if you don't want to stay in the town in which you are looking to buy.
Fear or uncertainty of the future are never valid reasons for not taking action - there will always be economic uncertainty, change, and surprises. If you aren't going to buy because the ‘economy is bad', then realize you are forcing yourself into a situation where,
- You will never buy a home as the economy will always be bad, just starting to recover, or starting to get bad.
- You'll never buy because you don't know what tomorrow will bring
- You will buy, but only when the economy is strong, in which case you will be buying a house in a strong market, which means the prices and interest rates will be higher.
You can find a million reasons to buy a home or not buy a home right now. Separate the facts from the headlines, consult with an independent professional and let them guide you through a sound decision making process. Don't take advice from a newspaper or magazine article as everyone's circumstances are different. Evaluate your choices in light of your unique circumstances.
One other tool you can use is a Rent Vs. Buy calculator to help you see the differences between continuing to rent and buying a house. The numbers don't tell the whole story, but it is a good starting point to add some facts to a highly emotional decision.
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