To Rent or Not to Rent?
REGION – A key component of the American Dream has always been to own a home. But the economic downturn, particularly in the housing industry, led to short sales, defaults, and people simply walking away from their homes. Owning a home became a nightmare, particularly for those who borrowed beyond their ability to pay, and for those who loaned them the money to do so.
So is it better – or at least safer – to rent than to buy? Renting is no longer the province of those too poor to buy. In fact, there are several classes of renters, some of whom could eventually turn into buyers.
But many renters choose not to, because renting ensures flexibility and mobility. In these days of job changes and losses, these become important options.
Even those whose job it is to sell homes or who service the home-buying industry agree that there are circumstances where renting is a sound choice, even a better one. Doug Porter, a real estate agent with Coldwell Banker Schmidt Realtors®, said people should consider their wants and needs.
"It's based on their lifestyle," Porter said.
Porter rents out two condos that he and his wife, Judy, also a Realtor with Coldwell Banker Schmidt, own. "I have a renter who is never there, he's on the road all the time. He doesn't have time to care for a house, so this is perfect for him," he said.
Kim Pontius, Executive Vice President of the Traverse Area Association of Realtors® (TAAR), says it is often advantageous to rent when moving to a new area. In fact, that's exactly what he was told to do when he moved here.
"It was recommended by our Realtor to rent for a year," he said. "It allows you to acclimate yourself to the area, find out just where you want to live and the type of lifestyle you want."
He didn't listen, and while he and his family are happy with the home they bought, he says they might have made a different choice if they had rented first.
"In hindsight, we might have thought differently," Pontius said. "We had kids leaving for college, and became empty-nesters after a year."
Pontius said he is open-minded about owning a home versus renting.
"As life changes, your circumstances change and your needs change," he said. "A lot of boomers are looking at renting versus buying."
Teresa Woods of Visit Up North Vacation Rentals said the vacation rental business has been strong, up 15 to 20 percent this year. But she has had so many inquiries for residential rentals that she is starting a new rental business for those properties, Harris Properties.
"We've found more and more people asking for help with long-term rentals," she said.
One difficulty in renting is the lack of a clearinghouse for properties. While nearly every local home for sale can be found through TAAR, national real estate website Trulia.com or through local lenders, rentals are listed in different places, such as newspaper classifieds, Craigslist.com, with management companies, or even through real estate offices.
According to a 2010 report by the New York Federal Reserve, the effective homeownership rate, which excludes borrowers whose homes have mortgages that exceed market value, currently stands at 62 percent. That's down from 69 percent in 2006.
Chris Dakoske, a mortage lender with Chemical Bank, said that there are times when renting makes the most sense, but "the current market and interest rates make buying an easy argument."
"It's absolutely a great time to buy, and it is a buyer's market," he said. "You look at the ads, and we've had real estate that's dropped 30 percent or more. TAAR's (sales) numbers are up. The bottom is in place, and we're starting to move up."
TAAR reports that sales of single-family residential homes for 2012 so far are 1,395, compared to 1,131 last year. In fact, sales for this year are greater than any of the past seven years, when 1,354 were sold in 2006.
Along with the fact prices have plummeted over the past four years, the number of homes on the market has spiked, with foreclosures and short sales adding to the typical number of homes for sale.
Factor in the lowest interest rates in decades, and it looks like a fantastic time to buy a home.
But is it? According to Trulia, the online real estate clearinghouse, owning a home is less expensive than renting in 75 percent of U.S. cities. However, renting is the preferred option if you plan on being in an area less than three to four years or you believe your employment is at risk. Another important consideration is how easy it will be to sell the home when you plan to leave.
Then there is the process for getting a loan, which is much more stringent than it used to be. Dakoske said that the lack of such requirements and standards helped lead to the recession.
"Credit was way too loose and available," he said, noting that the days of loans based on stated income and stated assets are probably over. "Loans are being made to credit-worthy borrowers. You might need to document things more. It's not like lenders aren't lending – we are – but there are still loans under water."
Porter said both renting and sales are up, further proof the market is rebounding from its lowest point. "Homes are selling and there are plenty of buyers," he said. "Rent is strong. I'd have more opportunities to rent property if I had the inventory." BN