Abberly Green Blog

When deciding whether to rent or buy, you are making the choice to rent an apartment home or renting the capital needed to buy a home. Most Americans don't consider that they are renting equity (from the bank) to buy a home. As you are aware, very little equity is built in the first few years of paying a mortgage. Many people are surprisingly still very unaware of this fact.

This following article explains how renting is financially better than buying in about 75% of cases!

For the Past 30 Years, Renting Was Generally Better Than Buying

If homeownership is the American dream, then the nation had better wake up. That's the message from a new research paper that examines whether buying or renting a home was a better financial decision over the past 30 years. Most would find the result surprising: over the period Americans were better off renting between 65% and 75% of the time, depending on the investment alternative.

The article essentially looks at eight-year periods and assumes that a person invests the money he or she saves by renting. Since buying is generally more expensive than renting, renters have extra money to invest. It also makes a number of assumptions favorable to homeownership, including gains from the mortgage interest tax deduction, the option to refinance, and the ability to walk away -- loss-free -- from an underwater mortgage. Still, renting wins approximately three-quarters of the time.

The staff at economic research organization e21 explains why this result actually shouldn't be so shocking:

Counter-intuitive as the finding may be to some, it is actually quite logical. Unless someone possesses the cash necessary to buy a residence, he or she will be renting one way or another. The choice is between renting the property directly or instead renting the capital necessary to buy the property. The amount of capital to be rented is a function of house prices, while the bulk of a mortgage payment is interest, which is the rental payment on this capital. After 2 years, the typical 30-year amortizing mortgage balance has been reduced by less than 3%. This means that a household that took out a $300,000 mortgage with a 5% interest rate to buy a home has only reduced its mortgage balance by $8,600 after two years despite spending nearly $39,000 in total over this period.

Housing advocates may respond by pointing out that at least the $8,600 in this scenario went towards home equity rather than simply being squandered on rent. But, as demonstrated in the Real Estate Economics article, the principal component of each mortgage payment - i.e. the portion of the mortgage payment that goes towards reducing the principal mortgage balance instead of interest - is an added expense renters don't have.

This turns the real estate industry's biggest talking point on its head: you aren't throwing rent into the wind each month, you're casting away equity.

Of course, that equity also provides a potential benefit. The analysis's eight-year rolling methodology appears to miss the biggest reward of owning a home: living rent-free once the home is paid off. After that 30-years is up, the longer a family remains in that home rent-free, the more buying pays off. Taking this into account would almost certainly change the result in some, if not all situations. Renting may be a better option initially, but there's no eventual reward.

An important point still needs to be made here: buying a home that you don't plan to live in for an extended period of time probably isn't a great idea. The rent you pay in the form of interest on a 30-year loan for five or even 10 years won't be any better than if you had just rented outright. But if you're planning on living in a home for 30-plus years, then you could potentially get some benefit from buying rather than renting.

Original article by By Daniel Indiviglio, The Atlantic

National house prices have dipped in 19 of the 20 largest metro regions, and declines in house prices are expected to continue given the 1.9 million in backlogged foreclosures. As the American economy shifts from buying to renting, with the number of renting households rising by 700,000 annually -- according to a USA Today analysis of Census data -- the number of homeowners fell by nearly 200,000 per year. Unemployment rates remain high and wages are down, which makes it more difficult for people to buy a house and prompts them to rent.

A number of studies continue to show that renting is better than owning for many Americans, with a house being a poor investment compared to renting and investing in inflation-adjusted Treasury bonds. In the paper "American Dream or American Obsession?," Wenli Li and Fang Yang from the Philadelphia Federal Reserve Bank concluded that the "adjusted real rate of return on housing actually falls below zero," and the national rate of return for home ownership between 1975 and 2009 was 1.3 percent, below the 3.375 percent return for stocks.

Home ownership translates into less money available for investment and owning a house limits mobility should a new job opportunity arise elsewhere. Some economists have even suggested that high home ownership rates correlate to high unemployment rates. Declines in house prices could make it difficult to sell if the house is worth less than its mortgage. Not everyone should own a house, and the recession has helped eliminate some of the stigma once associated with renting, now that 70 percent of Americans now agree that renting has its advantages over owning.

Article from National Multi Housing recent release

WHEN DO MOST PEOPLE RENT APARTMENTS?

If you’re planning on looking for an apartment to rent the best time to start would be now.

We’ve been asked the question more than once, “When is the best time to rent an apartment?”  There really isn’t a perfect response for this question.  (Just because… you never really know a person’s situation). The perfect time for her else may be the worst time for him.  But typically during the month’s of May and September we receive the highest volume of tenants.

APARTMENT SEASON IS MAY THROUGH SEPTEMBER

That’s no surprise either.  You can see that the summer season has better conditions to be outside apartment hunting.  A greater number of college students are beginning school and graduating from school so relocating is more common during these months.  The turnover is greater around this time as well, one neighbor moves in another moves out.

There is also a higher demand around this time for apartmentsduring May and September.  If you want to know which time is the best of the best,  it would be toward the end of September and beginning of October.  Things are settling down during this time and you can get in the door with less hassle.  Assuming, of course, that units are still available at the community of your interest.

With that being said, call us and see what we have available.  Anyone of our leasing consultants would love to answer your questions.  877-240-1668