Saturday, December 28, 2013

Is It Better To Own Real Estate Or Rent?


To help answer this question, it’s good to know the path that is in front of you. Where will you be in five years? Ten years? One of the primary factors in making this decision is to consider the length of time you plan to live in your current community.

Over time, your biggest investment – your home – will appreciate in value. Those who purchased real estate near the peak (2006-2007) may not necessarily feel this way as many of those homeowners experienced a decline in housing values. However, similar to other types of investments (e.g. stocks, bonds, precious metals, etc.), real estate values fluctuate over the short term, but has steadily increased over the long term. In a recent article titled “Renting vs. Buying a Home: Which Is Smarter?” (U.S. News & World Report, December 13, 2013), Geoff Williams asks a few questions which takes into consideration where you are in your life – based on your age, family status, and career goals. Depending on how you answer these questions will determine your future plans and whether or not it makes sense to purchase a home.

Once you have determined your level of commitment to your career and community, the next factor to consider are trends (e.g. housing values, mortgage rates). Is it wise to invest now?

Investors know that timing is extremely important for investing – buy low; sell high. During the past year, demand for homes exceeded supply which caused values to increase. Many analysts suggest that the increase in demand was created due to several factors including rising mortgage rates, rising home values, stronger consumer confidence, among other economic variables. The Wisconsin REALTORS® Association published their “2013 November Home Sales Report" (dated December 23, 2013) and it was noted that “prices were…higher in November, rising 4.7 percent above the same month last year…”

Although owning real estate has become less affordable in 2013 due to rising mortgage rates and housing values, rates and values remain near all-time lows. Mortgage rates and housing values are expected to increase throughout 2014 (many analysts are predicting that mortgage rates will be near 5.000% by the end of 2014). Major changes to lending policies (e.g. Qualified Mortgage, The Feds eventual elimination of purchasing mortgage-backed securities) may also make borrowing money more expensive in 2014. After lean inventory levels in 2013, I anticipate that more and more sellers will enter the market in 2014 as home values continue to increase and owners recoup lost equity since the real estate bubble. A slight decrease in demand due to tougher lending policy changes and an increase in supply will balance out the marketplace in 2014 and values are expected to increase at a slower rate than what we experienced in 2013.


Downtown Milwaukee Condo Market | Average FMV Trends




Mortgage Rate Trends (Provided by Wisconsin Mortgage Corporation)




If you’re committed to staying put in Milwaukee, should you buy or rent? One of my current clients owns a downtown-area condo that appears to be priced very competitively for prospective buyers who may be considering this very question.

To illustrate the difference between owning and renting in downtown Milwaukee, I will compare my client’s condo at Union Point and a comparable property that is available to rent (details provided by Heather Johnston, founder and CEO of Find My Spot).


Union Point #205 – 1 Bedroom, 1 Bath, Indoor Parking, Balcony, Central Air | $126,900

Union Point is FHA-Approved – which means that borrowers are able to take advantage of low downpayment requirements (3.5%) and competitive mortgage rates (4.125% per Wisconsin Mortgage Corporation, quoted December 27, 2013*).

* Rates and fees are subject to adjustments based on your credit score and the loan to value ratio. Rates and fees are also subject to change without notice. Other rates and loan programs are available. All applications are subject to current underwriting guidelines and credit approval. EHL

Total Money Required (includes downpayment, closing costs, and prepaid expenses): $6,499

Total Monthly Payment (includes initial principal and interest, escrows, and condo dues (which also include cable)): $1,258

According to Johnston, a comparable one-bedroom apartment in Milwaukee’s East Side neighborhood is available for rent at $1,386 per month (and parking is not included).

Owning Unit 205 of Union Point (with garage parking) provides a monthly savings of at least $128 over renting a comparable unit in Milwaukee’s East Side (without parking).


The figures above are based on the minimum requirements for FHA financing.  Below, please find a chart prepared by Wisconsin Mortgage Corporation that will provide other financing alternatives (Conventional financing with 5.00%, 10.00%, and 20.00% downpayment).




Moving in 2014? Please contact me at 414.412.7980 or dray@shorewest.com for more information about the Milwaukee Metro real estate market!


Disclaimer: All data and information provided on this site is for informational purposes only. The author makes no representations as to accuracy, completeness, currentness, suitability, or validity of any information on this site and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. This is a personal weblog. The opinions expressed here represent my own and not those of my broker.