Sunday, March 21, 2010

Should You Buy or Should You Rent Your New Home?

I have been making the case for many years in my newsletter and blogs that there really is no longer a strong case for buying a home---unless your circumstances are truly unique, for example, you plan to live in your home at least ten years, or you were getting a massive discount on the original purchase, say 30% or more below the actual intrinsic value of the home, which is NOT its current or former market price.

Here is an excellent article from YAHOO! Real Estate that makes my very point. The prices of most homes are still ridiculously overvalued compared to the rents being offered by some landlords desperate to fill vacancies. In some areas, like my own in downtown Seattle, lessors are offering one, two, even three months free rent on a single 12-month year lease.

Try getting that sort of a deal from your mortgage lender.

Plus keeping the difference between your rental payment and potential mortgage payment in cash is the cornerstone of liquidity, something you better have in this unstable employment environment.

With the residential real estate market still very unstable and the risks of a double-dip recession very likely there is no logical case that can be made for buying over renting UNLESS your circumstances are truly special and rare.

This same analysis applies to all those investors scooping up all those foreclosures for cash. WHY? Residential real estate returns will be negative or flat for a generation to come. There is no urgency here to buy. Do you REALLY want to play landlord in this market? What incentives can you offer a tenant that the major players can't?

If more people had listened to me starting in 2004 when I was warning about the absurd prices of homes and condos from Seattle to Miami a lot fewer people would be doing short-sales today.

Robert J. Abalos, Esq.