Should I BUY NOW or RENT?
I have been getting this question A LOT lately! Everyone's circumstances are different, so I am just going to try to lay out the basic facts of what is happening in our market right now. I don't feel we need to go into detail of the mean old landlord or fighting over parking spots in the apartment complex, I'm sure you already know all about that.
1. The market is up right now. In southern California the market has bounced back since the "crash" of 2008. Typically what I have seen in a real estate cycle is the market will cool off during winter while less families are looking to move, and people aren't as interested in buying or selling a home over the holidays. Typically that equates to inventory sitting, and prices coming down. The winter of 2017 has been unique , however, with buyers continuing to flood the market even through the winter season, continuing to drive prices. Right now there is a good amount of inventory out there for the buyers. Although we may still be in a bit of a "sellers market", if you shop around enough, you can still get a good deal (seller credit, below listing, etc.).
2. Interest rates are up. Does anyone remember the average interest rate before the crash? According to data from Fannie Mae, the average interest rate was about 6%. The federal government lowered the interest rates in the following years to help people afford to buy again. In 2012 the average interest rate dipped to about 3.5%, the lowest we've seen in over 40 years. Now that the housing market is recovering guess what? Yup, the federal government has been raising the interest rates.
Is now a good time to buy? Or should I keep renting?
One thing with rent- I've never seen or heard of it getting any cheaper over the years. Typically they raise the monthly rent every year you live in an apartment! A $100 increase every year is common for many apartments in my area.
So rents don't go down, but what about house prices?
In reality house prices are still low because interest rates are still low. The current interest rate is at about 4.5%. The average interest rate from 1971-2007 (before the "crash") was 9.2%! As the rates go up over the next few years, waiting could potentially cost you quite a bit of money.
Consider a $300,000 purchase at 4.5% versus 9.2%
You would be paying $904 more every month!
Summary: If you buy now, it could definitely be cheaper than waiting and missing the bandwagon. The huge plus here is that your payments (depending on the loan you choose) are typically fixed for 30 years! How much will rent rise over 30 years? According to the "Historical Census of Housing Tables" a 2 bedroom California rental increased from $252 per month in 1970 to about $1,500 per month in the 2000's.
I like the idea of knowing what your payment will be every month for the coming years, not having to deal with landlords and paying toward something that you can own and have counted as an asset in the future.