One of the best things about owning your own home rather than renting, is that you earn equity with every payment. Renting means someone else gets all your money.

When unemployment is high and neighbors are falling prey to foreclosure, buying a home may be the last thing on a renter’s mind. However, the best reason to buy a home doesn’t depend on the economy, or even the market where you want to live.

Calculate your renting risk

Some may go as far as saying renting seems better than buying when unemployment is still up and the value of the dollar is down. Renting can look good when the housing market is so unpredictable. However, there is no security in renting. Consider that a landlord may find themselves in foreclosure, putting a renter in a precarious position. When you don’t own the home yourself, you may have no knowledge that the landlord has stopped paying their mortgage – even if you are reliably paying your rent each month. If a renter is lucky, their landlord may disclose that they’ve stopped paying their mortgage, but most don’t.

Typically, when a landlord goes into foreclosure, their renters will find themselves packing and moving sooner rather than later. Once the bank sells it, the new owner may or may not have any interest in continuing to rent the property.

If an owner has an adjustable rate mortgage, the renter will not be able to predict or control what happens to their landlord’s situation. Their payments could increase substantially and unexpectedly. Even if  the rent is low now, it is not guaranteed to stay that way.  Higher rent prices might also come as a result of increased foreclosures on the market. As more owners become renters, there will be far less inventory left to rent, pushing rent prices higher.

Determining home value and other economic factors

While fear is a major reason many people are delaying their decision to buy a home. Those who are in the position to buy a home, either with cash or excellent credit, will find a wide variety of choices in this buyers’ market.  News, Realtors and investors are talking about why now is the time to buy. Supply is high due to unprecedented foreclosures, particularly in the Southwest Florida market. Demand may seem low because of the high supply in relation to number of buyers, but actually the number of sales is also at the a very high level. Buyers are taking advantage of the low prices, well below replacement costs.  Many home buyers and investors have the cash in hand to take advantage of these prices.

A home is valued at what a buyer is willing to pay and what the seller is willing to sell for. If you finance the bank has
their say on the value when they determine from a mortgage standpoint, how much they are willing to lend. If a renter/potential buyer is personally solid in this economy with a steady income, then now is an excellent time to buy.  Not so much because the market value of homes is so much more affordable, but rather because the value of a home owned versus the uncertainty of a rented one is greater. With today’s interest rates, paying a mortgage is a much more controlled and predictable way to go than to take chances with possible rent changes in the near future.

The Florida market outlook

It’s no secret that during times like these, with home prices and interest rates so low, many people agree now is the time to buy. People who are purchasing today will be making a good investment by buying at prices that are well below how much they would be worth in a few short years. Qualified buyers can also get unprecedented low interest rates on a mortgage. This will continue until all the foreclosures are filtered through the system of the courts, auctions and REO sales. As this inventory dries up, and assuming that people will continue dreaming of  owning a Florida home, prices will start to rise. We don’t expect the same growth rate as the crazy period from 2002-2006, but it will stabilize and then creep up over time.  Reports have long shown that baby boomers are moving to Florida (shopping for homes long before they retire), and there’s no indication of that changing in the next 10-15 years. That will drive a lot of growth, prices and home sales. While renting at this time may be a necessary evil  for the timid or unqualified, renting when you could buy is like throwing away over $10,000 a year without building any equity.

The bottom line

Trying to time the market perfectly or predict what will happen next is next to impossible. For that reason and more, buying a home should traditionally not be looked at as a short term investment. Understandably, home-buyers are waiting for the “right” time. But just because the market price is half what it was last year, does not mean it is the right time. Consider personal factors (such as how long you will be in and area and financial security) and options, and remember that whether deciding to buy or rent a home, there’s always a risk that something won’t go according to plan.