Should I Rent or Buy?

The Surreal Facts surrounding today's struggling economy

“Note: This editorial uses the Houston, Texas economy as a model but the universal philosophy supporting the decision to “Rent or Buy” should apply to all areas.”

The decision to rent or buy will likely depend on ones needs. Whether you are living large or conservatively, the decision to rent or buy is probably going to be determined by the local job market and strength of it. Success in any endeavor is affected by job growth. If there is no work, then there is there’s obviously no opportunity. While many large metro areas across the nation have struggled, Houston Texas has had a vigorous amount of opportunity for the last couple of years compared to other similar sized cities. Currently, Houston’s job growth is ranked #1 or #2, depending on which forecast you subscribe to. Why? Well, it’s a subject of economic diversity, lower expenses, and opportunity.

“A quick historical look into Houston’s economy will enable you to make an informed decision on whether to Rent or Buy locally.”

Some say that Houston is really an economic success story! After the oil bust in 1980’s, Houston’s government and local figureheads facilitated changes to help diversify its assets. The oil bust produced a glut of vacant housing and defunct businesses. What happened? Houston was too dependant on OIL for its economy. Unfortunately, the old Cliché of “too many eggs in one basket” proved detrimental and paved the way for a monumental collapse.

The bust caused a complete fallout and domino effect on Houston’s economy and left many wealthy investors, families, and corporations bankrupt. A large amount of these institutions and people were not even related to the oil industry. It was this “economic domino effect” that persuaded local leadership into making changes to help build back a much more diverse economy and help Houston get back on track to being an economic powerhouse that it once was.

Today, Houston’s diverse economy attracts a large number of corporations and the trend should continue mainly due to the low cost of living, lower taxes, and a highly developed mode of transportation of goods via rail, air, and sea transport that continues to persuade companies to make Houston their Corporate Hub. Houston will always be a major hub for energy because of its ability to import/export vast amounts of product worldwide with its expanded ingress/egress of the Port of Houston. Houston’s job market now offers more stable employment because of its diversity in manufacturing, healthcare, among others. The Texas Medical Center in Houston is the worlds largest and the port of Houston is the one of the busiest ports in America.

“Ok, Should I Rent or Buy? Let’s take a detailed look into the positives of each. “Note” See conclusion for a quick look at the numbers breakdown and access to a Rent or Buy calculator.”

RENT A HOME

• Live in nicer location River Oaks is considered one of the most affluent neighborhoods in Houston. Median prices are around 1 million and soar to over 20 million. Average Houston apartments prices in this area are around $1200 monthly.
• Uncertain Job stabilitycould you be transferred? Are you new to this job? Are layoffs a probability?
• Social Environment everyone needs friends and companionship. The local bar is usually the most social place to meet people and hang out, but renting an apartment gives you more options. The apartment community pool or community sponsored get-togethers is an awesome place to meet new people.
• Get to Know the area. This can be a big one if you are new to the area. While referrals can be a good reference, it really takes time to get a handle on what YOU like.
• Less Expensive. No property taxes, no maintenance costs, no closing costs, no property insurance no homeowners fees.
• Can Live close to Urban Localities. Walk, ride a bike/scooter, or take the rail to Downtowns nightlife, pubs, clubs, and restaurants.
• Unstable Housing Market . Some argue that its time to buy because prices are low. Others say prices will remain low because the glut foreclosures on the market equates to too much supply.
• Less Risky. People lost their life savings as a result of the housing bust. Even if you saw it coming, it’s not a quick and easy task to cash out and save your equity.
• Simplicity. Just pay rent and let someone else worry about the rest.

BUY A HOME

• Investment opportunity. Buy low and sell high. Prices are low and money will be made when the demand returns. Successful investors are cautious but patient. The world population is expanding exponentially, jobs will be created and demand will rise again.
• More space. A large family, planning on getting roommates, you may have a pet or a hobby that needs lots of space.
• Large tax deductions. You can deduct your mortgage interest local taxes and any mortgage insurance. See your IRS publication for details.
• It’s a Buyers market. You should be able to negotiate the already low prices even more.
• Low Mortgage rates. Take advantage of historic lows and borrow cheap money.
• Staying Put. Not moving for at least 5 years, the approximate time it takes to break even on your closing costs. However one must also factor in their selling costs as well.

Foreclosure Outlook and Supply and Demand

It may appear that the housing market has hit the bottom and prices have declined from its bubble state from a few years back. Is it a good time to buy since prices are low? One must consider that the success of any product/service starts with supply and demand. The Hard Facts: between 2006 - 2010 there were over 13 million foreclosure “filings” in the U.S of which 3.8 million of them were foreclosed upon. The forecast for 2011 is that “actual” foreclosures will accelerate higher than 2010’s numbers and will add another 1.1 million, totaling 4.9 million “actual” foreclosures during this recession to date. In addition, and during a similar time frame there have been over 5 million jobs lost with still more to come.

“In essence, for nearly every job lost, there was a foreclosure!”

If you believe homes will be in short supply then it may be a good tine to consider ownership but the facts and figures are out there and they are showing that supply outstrips demand. The job market will drive the housing market. To get detailed foreclosure stats for individual years by City Name, States try RealtyTrac.

Good buys are out there in certain high demand areas of the city but it may be awhile before the prices rise again. Prices usually rise from decreasing supply thereby increasing demand.

On a positive note, the world is still spinning and we are still multiplying. In 2010 there were 308,745, xxx American citizens and the population is forecast to increase by more than 40 million people by 2025 according to Bits of Science, a daily news and science publication.

“Population is Forecasted to increase 40 million by 2025”

Conclusion
Home ownership expenses are often understated as there are many hidden costs related that one must consider.  Calculating the costs of renting or owning is complex and unfortunately many of the Rent or buy calculators sacrifice accuracy for ease of use. Looking at the ongoing expenses of home ownership you need to and add in the following for a home valued at $200,000 for this scenario;

• Maintenance = 1% annually ( 200K home X 1% = $2000 annually)
• Average property taxes = (+-) 3% annually ( 200K X 3% = $6000 annually)
• Homeowners Insurance = (+-) 1% ( 200k  x 1% = 1,800 annually)
• Association Dues = will fluctuate depending on individual neighborhood; dues can exceed $500-800 annually.

You would spend approximately $10,300 annually for taxes, maintenance, dues and insurance alone. That’s over $850 monthly before paying any principle or interest and that amount alone would rent a decent pad in a trendy location that you may not be able to afford otherwise.
If you don’t come up with a 20% down payment then there would be private mortgage insurance PMI costs as well. Its rate is calculated base on the percentage of the loan.  See How to calculate PMI insurance in Texas for your rate. This can exceed $100 monthly.
Rent vs. Buy calculator. If you still want to calculate the differences, we have found that this calculator gives you more detailed expenses comparison with a graph, compared to some others.

by; Houston apartments staff, 8/2011
info@houstonapartments.com