The debate on whether buying or renting makes more sense to potential homeowners has been a cause of contention for decades. It’s gone back and forth over the years leaning to one side or the other depending on the market, home values, prices and of course, interest rates. But what about in places where the economy is doing well and housing prices are booming? Our home prices increasing so rapidly that is easier to rent and buy? On the flipside, is the supply so low that homebuyers are simply shot out from finding a home in a decent price range and rents are skyrocketing through the roof?
California in general has a relatively young history in their housing market and the trials and tribulations associated with owning a home. It also depends on where you’re moving from; those that are moving was in the state don’t see anything wrong with spending $700,000 on a 600 square-foot condominium. Others in places like Portland, Seattle or smaller, urban areas may find this completely outrageous knowing that they could spend $700,000 on a lavish 5000 square-foot estate and other places.
This is why in expensive areas such as California and Southern California specifically, people are shifting to renting properties rather than buying. However, zero down home loans, and low interest rates make buying awfully attractive, considering renting a similar property could be just the same if not more than buying that home. This is where people are driven more by emotion rather than logic. There is pros and cons to renting or buying and it all depends on your current situation, your finances and the micromarket in which you’re considering.
Real Estate for Investment?
For investment purposes, the housing market can be considered overrated. The median home price for a home throughout the US is currently at about $289,000 where the latest data on the home income is about $54,000. This means that the typical US Home cost 5.3 times the annual US household income. However, this is certainly not the case for Orange County and California in general. In LA County alone the median home prices over $500,000 and income is about $61,000. This means that the home cost 8.4 times more than Los Angeles County’s household income. The same is true for Orange County and others Southern California neighborhoods.
US homeownership rates are declining because home prices are rising dramatically. Household incomes remain stagnant, making it almost impossible to rise with inflation. Unless you have an all-cash offer and can gain instant equity, renting is been a popular option for many Southern California homebuyers and home searchers. You certainly would want to sell at a loss, so coming in with instant equity or planning on staying a while is really the selling point for whether or not a homeowner should buy or rent.
It also comes down to personal financial situation and location. If you’re planning on staying in the home for quite some time, at least five years or more, buying might be a great option. Interest rates are still historically low and even though they plan on going up over the next two years, they probably will not hit the 5% mark until 2018 or 2019. However, this is just a projection. Home prices are also increasing but with interest rates low, many homebuyers can afford a larger home and a higher mortgage payment with this low interest rate. For instance: a $500,000 mortgage with a 3% interest is about $2100. That same mortgage with a 5% interest is nearly $2700.
Again, it comes down to personal situation, finances and your long-term plan. If you can get in on a great deal with a low interest rate in an up-and-coming neighborhood, chances are your home will increase in price annual gain equity fairly quickly. If you’re planning on moving every couple of years and prefer not to have the responsibility of homeownership, renting might be your best bet. In any case, feel free to browse through my website for more information on homebuying, interest rates and the market or simply start your online search here with my property search throughout Orange County and surrounding areas.