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.
posted by David Ray @ 1:27 PM
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