Tuesday, May 3, 2011

The Rent vs. Buying Debate Continues

This is about to sound like I'm contradicting some past columns, but I don't think so.

Trulia.com web site has introduced statistical research designed to show that in many large cities it is "better" to buy a home than to rent.


Obviously, I'm in favor of ways to get homes to start selling at a much higher pace around the country. Yet, I don't think this is a way to accomplish this. For as much as I use statistics to make a point, to enhance my enjoyment of sports, and for a variety of reasons, I also understand that there are instances where statistics need to be better qualified to make the intended point(s).

In this case, the "decision" of whether to buy or rent is not based on statistical reasoning. The plane is not equal.

Fewer and fewer potential home buyers can qualify for a mortgage these days. Even fewer have sufficient funds for enough of a down payment to purchase and then secure a mortgage. Each time either or both of those situations occur, it takes away the "rent or buy" as an actual option. If they can't afford to buy, then renting becomes the only option.

Many people already know that the current real estate market is a buyers' paradise. Yet, as our elementary school teachers would have told us in this sentence, the same market does not contain a paradise of buyers.

What the statistics in the article fail to point out is that the majority of the people are not making the choice they are basing their information on.

One of my suggested results actually reduces the distinction between renting and buying, and it would open up both avenues for years to come.

I'll say it again. Make "Rent To Buy" a major part of our vocabulary. This is a drastic measure, but the state of real estate calls for it.

Make homes currently in status as bank foreclosures available for rental only via annual (or longer) leases. The monthly "rent" payment could be used toward a purchase after 5 years if the renter so chooses. After 5 years, the bank would have been collecting the "rent" money and would know the reliability of the tenant. This, instead of sitting on an empty home not generating any revenue at all.

If investors can't buy foreclosure properties at bargain prices, it instantly raises average home prices back toward the level of "real" sellers, instead of foreclosures pulling down the prices for everybody.

And those who currently cannot get a mortgage and/or afford a down payment have instant options.

Meanwhile, apartment buildings would then need more competitive rates for shorter term leases, which would likely help the rental market.

My reason for suggesting the 5 year period before the tenant could then "buy" the home is significant. Again, those consumers who have no other options (or a choice) would be able to establish some equity without the hassle of a down payment and initial mortgage. Yet, those who do have the funds for a down payment and the credit background for a mortgage could then buy now at lower prices. It is possible that 5 years from now, those who buy now could be able to turn that profit by selling high.

This situation can be created, and for everybody's benefit. But as of now, the 'rent' vs. 'buy' consideration is still not a choice. At least 80% of the time.

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