There was a great article in the New York Times the other day about how buying, in a lot of real estate markets, makes much more sense now than renting. I’ve blogged about the rent v. buy decision before, but this article gives some great new insight to the decision making process.
The first thing to mention is that compared to other real estate markets around the country, the Phoenix real estate market ranks first as a buy-don’t-rent location. See the chart below. From the NYT: “One way to figure out whether to buy or rent is to look at the rent ratio: the purchase price of a typical house divided by the annual rent of a similar house. A number above 20 means you should consider renting. A number well below 20 makes a better case for buying.”
Buy-Don’t-Rent Rankings
Source: New York Times
Of course, the Phoenix area’s number 1 ranking as a buy-don’t-rent location doesn’t take into account the numerous variables that can make renting a Scottsdale home better or worse for you. So check out the table below, plug in your information, and see the rental price that would make renting better than buying. If you can’t find a rental for that price (in a comparable house as you would buy), buying your Scottsdale home may be right for you.
Buy or rent? A median-priced Scottsdale home
Source: New York Times
Certainly there are houses in Scottsdale for rent for less than $1900 a month – but they’re not the houses selling for $400,000. To rent that type of house (in terms of size, location, and amenities), plan to pay between $2200 and $2500 a month.
I actually have a client who had this very debate – she was looking at a Scottsdale home for just under $400,000 in the amazing new Desert Ridge community of Fireside. But she couldn’t decide if now really is the time to buy, if she might be better off renting. So she looked at comparable rentals in the same Scottsdale area (relatively new, 2600 sq. ft., 4 bedrooms, in Desert Ridge) and they were going for about $2400. The calculator told my client to buy – which she did.
As you can see from the chart above, the longer you stay in your house (and accrue price appreciations), the more sense it makes to buy. The less time you’re planning to stay, the more it makes sense to rent.
Likewise, the smaller the annual rate of price appreciation, the less sense it makes to buy. That said, I would bet the farm that Scottsdale home prices will appreciate more than 1% a year in the next 7 years. (In fact, they’ve already begun to.) Home price gains may be somewhat sluggish over the next 2 years (that’s what experts suggest), but there is every reason to believe that in 2 or 3 years they will resume a typical annual appreciation of 5% or so.
What’s your take? Have you wrestled with the buy-or-rent decision? How did you resolve it? Click on the “comments” link below and join the discussion!
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