Is it smart to be a "fence-sitter" in 2008 if you are confused about whether you should buy a home - or to rent a house instead? This Realtor thinks that it's actually a pretty simple choice...
The issue facing so many American now, is if they'll get 'burned' financially buying now - as opposed to renting instead. But, in order to break down that decision to see if it's a sound decision - we must examine 2 key components. The first one is how much does rent cost you per month for the same equivalent lifestyle and home size? In certain parts of the country, renting is a very expensive way to live - and monthly rent costs a lot.
The biggest factor on this decision too, is that paying rent gives you NO tax write-off, where as 86-88% of a house payment & property taxes are tax deductable (86%-88% represents the interest portion of a 30 year fixed loan plus the property tax deduction during the first few years of amortizing). So your monthly interest deduction would be $1243 + 100% of your monthly tax bill; lets use $225 a month, which equals $1468. The rough way to figure this is to multiply $1468 by your .28 or .33 tax bracket (normally done on a Schedule A) which is $411 at 28% and $484 at a 33% tax bracket. These are the 'real' cost comparisons the US Government allows you every month to buy a house; and multiply them by 12 months to get $4,938 and $5,808 respectfully.
Another way to think of this - is like this: buying a house for the same or similar rent payment means that your house could "depreciate" $4,938 to $5,808 a year and you'd still break even!
The second comparison to fence-sitting and renting; to home buying, is that factor on "how long" you think you'll be living in the house or area, until you'll need a bigger or smaller house - or a job change might require you to sell?
This is actually the 'hardest' factor to consider...as no one can predict the future! If you are going to live in a house or rent for just a few years, I can tell you that the real estate commissions to sell a $250,000 house will be about $12,500 at 5% and $15,000 at 6%. If your home will NOT appreciate at these amounts, then you must factor in this expense into your rent vs home buying decision. Plus, the home might take 3-8 months (or longer!) to sell. But conversely, you'd be locked into a rental lease, and depending on when you needed to move, you might still owe 3, 6 or 9 months MORE on the lease you'd need to break!
This is the "X factor" that makes this renting vs home buying decision so hard! And - it's why fence sitting is so popular, as most people relate to making "no decision" as their typical process 9 out of 10 times, typically.
Then, look at buying a home which gives you the extra freedom & "peace of mind" knowing you control your destiny and have the joy of home ownership. You can paint, decorate and design the home anyway you want it! You lose all that freedom by renting. You can also pick the neighborhoods that you feel that 'matches' your socio-economic status - or feeds into a certain school(s) for your kids, or is closer to work or recreation opportunities. Finding a rental apartment or house in the same area might be tough or impossible...and most people 'clearly' state that they feel much worse about themselves when they are renting. The pride factor goes down significantly when renting. Homeownership is a very 'powerful feeling' once you've been a homeowner before!
In conclusion, it appears that the real decision to fence-sit or to buy a home will still be dominated by "indecision" in 2008 - as most buyers will NOT commit to a decision - because no one can clearly see the real estate market booming and growing again, anytime soon. My guess is that the home rental business will be very strong for at least another year - or longer...
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