MIAMI - Feb. 18, 2009 - Just six months ago, with South Florida home prices in a steady fall, the decision to buy or rent was clear for many prospective homebuyers - keep on renting, of course.
But these days, as the housing downturn enters another year, the question of whether the time has come to take the plunge is not as easily answered. The waters are at once tempting and forbidding.
There are lots of opportunities to own for less than it costs to rent, but it's unwise to make your decision without first considering the market and how long you are willing to commit.
Here are a few issues to keep in mind.
The case for buying now:
Median home prices in South Florida are back to 2003 levels and some new, never-lived-in property is selling for less than it would cost to build a similar home.
Additionally, the median price for a single-family home - now around $216,500 - is starting to come within reach of households earning around the median income in Miami-Dade and Broward counties. That could unleash pent-up demand.
Interest rates today are at record lows. This could save a buyer thousands more than buying at a cheaper price down the road when interest rates may be higher.
There are eye-popping bargains out there due to foreclosures and short sales. The excess of homes and condos on the market also means prices are low.
A new $7,500 tax credit is available for first-time homebuyers until July 1. This can be used to offset the cost of a downpayment.
The case for holding off:
There is the risk that home values will keep falling - especially for condos, analysts have said. The economy may also deteriorate further, threatening job security, and making the thought of taking on a home mortgage even more daunting.
Rents are also declining.
By holding off, renters can avoid paying homeowner and condo association fees that have spiked in many communities because of delinquencies and foreclosures.
Actual property appreciation could be years away.
Lending restrictions could loosen and downpayment requirements ease, tying up less cash in future purchases.
Still Hunter, a vice president of investment in the Fort Lauderdale office of Marcus & Millichap, a real estate services firm, attributed falling rental prices to a booming shadow market of condos and homes being rented by investor/owners as well as renters rooming together to save money and a decline in foreign workers - typically renters - who have headed home as jobs dry up here.
Rents on decline
Hunter said his firm's rental outlook for 2009 shows average rents (for one- to three-bedroom apartments) declining in Broward County by 2.6 percent to $1,094 and in Miami-Dade by 1.3 percent to $1,109.
"From my perspective, it makes sense to rent right now, while rents continue to decline and home prices continue to decline. We're not at the bottom," Hunter said.
Still, Hunter said, home prices have adjusted so much, it might make sense to jump into the market.
"It's a tough question to answer," he said.
On the other hand, Ron Shuffield, president of realty firm Esslinger Wooten Maxwell in Coral Gables, said it was the first time in a long time when the cost of owning could be cheaper than renting. He was able to demonstrate how a person buying a condo in Toscano, a new complex near Dadeland Mall, at the current list price of $220,800 could save $775.92 annually over renting an identical unit for $1,350 monthly. EWM is the exclusive brokerage firm for Toscano.
The analysis is based on a buyer getting an FHA loan with a 4.625 percent interest rate. A buyer would need to pay more money out of pocket each month - the monthly payment for the 759-square-foot unit is $1,914.79. But after annual tax deductions for mortgage interest, mortgage insurance and property tax, the annual savings tip the scales toward owning, Shuffield said.
In his analysis, savings also include equity built up each year from paying down the mortgage.
Before affordability alone sways a renter to start looking, the first question to ask is how long a potential buyer thinks he or she will live in a home, said William Hardin, director of real estate programs at Florida International University.
In a normal market, where homes appreciate at a rate of about 3 percent annually, owners typically lose money when they sell within two years because the cost of selling generally exceeds 6 percent due to expenses.
But, again, that's in a normal market.
There are very few real estate analysts audacious enough to call a bottom on home prices right now. However, Madeleine Romanello, a real estate agent for Douglas Elliman Florida, said that prices in some highly desirable areas such as Coral Gables and Miami Shores seem to have stabilized at 2004 levels.
No bouncing back
Even when prices hit bottom, it doesn't mean they will bounce back up, said Alan Ojeda, chief executive of the Rilea Group, a Miami-based developer of large-scale rental properties. That makes the horizon for profit even longer and means that a buyer in the current market should be committed to a home for several years.
Ojeda, who said he is trying to fill up One Broadway, a new luxury rental tower in Miami's Brickell area, takes it a step further, saying that unless a renter believes a home's price will appreciate in the next three years, he or she would be better off remaining a renter.
"It's the same theory you use when you decide whether to buy or lease a car. What you are looking for is to use a car. If there's no appreciation in a home, wouldn't you prefer to use a home, since after three years you would have spent more money on real estate taxes and the mortgage. What would your gain have been?" Ojeda asked.
Still, there are signals the blood-letting in the real estate market may be starting to slow. Sales were up significantly in December, the last time figures from the Florida Association of Realtors were available, and that made a dent - albeit small - in the number of homes for sale.
Hardin said it was hard to imagine values would continue to fall at the same rate at which they have since the market peaked. Prices are likely to continue falling, but it'll be by smaller percentages, he said.
Unless renters wholeheartedly believe prices will rise over the next several years, they may want to stay put, he said. Aside from the past seven years or so, real estate has always been seen as a long-term investment, Hardin said, so buying low today and selling in 10 years could be lucrative.
Either way, there's little downside in delaying the decision.
Now or later?
Romanello acknowledged there would be little difference in buying now vs. later. She said that among her clients who had decided to wait, the worst that happened was they lost several great opportunities.
‘I don't think there is any urgency to buying because I don't think in six months' time prices are going to be up 10 percent," Romanello said.
Source:
Miami Herald, Monica Hatcher. Distributed by McClatchy-Tribune Information Services
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