Rents are up in Southern California. So are home prices. You want a place of your own, but aren’t sure if you should buy or rent. What’s your best course of action?
Good question, but finding the right answer takes some digging. First, some statistics:
- According to real estate data firm Reis Inc., the average rent in Los Angeles County in the first quarter of 2015 rose 2.4 percent vs. 2014, to $1,520 a month. Orange County climbed by 3.5 percent, to $1,660.
- Both counties are among the costliest rental markets in the country, but below the $2,277 average rent in San Francisco and $3,233 in New York – and among the most competitive.
- Seven of the 11 most competitive rental markets in the country are in California, including San Diego, Ventura County, and the Inland Empire, where rents rose 1.6 percent in the first quarter, the second-fastest pace in the country.
- Rental prices in San Diego County have been rising at annual rates between 3 and 6 percent, The San Diego Union-Tribune reported at the end of July.
- Home prices in Southern California have climbed by one-third in two years, a Los Angeles Times article also noted at the end of July.
- MarketPointe Realty Advisors reports that in San Diego County, the weighted average single-family home price was $959,251 in the first quarter of 2015, which dropped to $874,569 in the second quarter.
- As for condos, the average price of a new attached unit was $660,156 in the first quarter, but dropped to $538,570 in the second quarter.
- In four to five years, the county’s average new-home price will exceed $1 million and remain there.
Most everyone knows the advantages of buying over renting: Equity that builds over time. A safeguard against inflation. Tax-deductible mortgage payments. The satisfaction of living in a home that you can improve or modify to your liking without worrying about a landlord.
But coming up with a down payment, qualifying for a loan, and finding a suitable home in the neighborhood of your choice can be setbacks to ownership. So here are few things to consider when weighing one option against the other:
- How long do you plan to stay in one place? Buying usually is better the longer you stay, since your upfront fees are spread out over many years.
- Tax liabilities: Property taxes and mortgage-interest costs are important, but as mentioned above, they are deductible. The higher your marginal tax rate is, the bigger the deduction will be.
- Closing costs can be significant: Fees for home inspection, title search, and mortgage insurance are part of the home-buying process. Plus, you’ll have moving expenses when you buy or sell.
- Maintenance and upkeep: Owning a home means paying for things that renters typically do not. They can range from painting and carpeting to water bills and trash pickup.
- Rental costs: Paying first and last month’s rent, a security deposit, and possibly a broker’s finder’s fee, can really hit your wallet. Those are costs that could go toward a down payment or upfront fees on a home purchase instead.
Deciding between the flexibility of renting and the potential long-term reward of homeownership is on the minds of many would-be buyers. Jed Kolko, chief economist at Trulia, creates the Rent. vs. Buy Index for 100 U.S. markets. By factoring in home prices, rents on comparable apartments, interest rates, tax deductions, and other variables, he computes the difference between the costs of buying vs. renting.
Last February, he forecast that buying would be 24 percent lower than renting for the typical household in Los Angeles County over seven years. In Orange County, it would cost 21 percent lower. But, he pointed out, home prices have been rising faster than rents, and the next time he analyzes the numbers, he predicts those figures will be smaller.
Want to take a stab at crunching the numbers yourself? This interactive calculator from realtor.com examines the most important costs associated with buying a house and computes the equivalent monthly rent.
Whether still you’re on the fence or ready to start the ball rolling toward homeownership, it’s always worth your while to connect with a great real estate professional.
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