Should you buy or rent a home? The cost gap narrows

Thinking of buying a home? Consider this: The gap between monthly rents and mortgage payments is at its lowest level in almost 20 years.

Affordable home prices and low interest rates have created an ideal time for many buyers to purchase homes, and now a new week-long look at homeownership confirms it. The national study, conducted for The Associated Press, shows that the difference between monthly rents and mortgage payments is at its lowest level in nearly 20 years.


  • The analysis of 45 metro areas found the difference between the monthly mortgage payment on a median-priced home and the median rent has declined to $256. In some areas, the difference is as low as $100, according to the study. The last time the price gap was that close was in 1993, when it decreased to $264.
  • The study, conducted by Marcus & Milichap Real Estate Investment Services, used median prices for the last three months of 2009 and calculated mortgage payments by assuming a 10-percent down payment and a 30-year fixed loan at 5.07 percent. It also assumed borrowers paid for private mortgage insurance and didn’t include repair costs and tax benefits.
  • Although the difference between monthly rent and monthly mortgage payments is at its lowest level in nearly 20 years, more stringent lending standards have made the home-buying process more challenging. Home buyers can prepare by ensuring their credit reports are up to date and saving for a down payment of at least 20 percent. Borrowers putting down less than 20 percent likely will have to purchase private mortgage insurance.
  • Owning a home has significant tax benefits, including deductions for property taxes and loan interest. Homeowners also can enjoy building equity and creating a means of forced savings as they pay down the principal on the home. A home appreciates in the long run and acts as a hedge against inflation. It helps diversify your assets, builds equity and provides a means of forced savings as you slowly pay down the principal. Real estate also is a leveraged investment, unlike most others. If you put 10 percent or $20,000 down on a $200,000 house and it appreciates to $300,000, that translates to a 500 percent return.
  • Although home buyers should not focus solely on future home price appreciation, according to data collected by the CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.) over the last 40 years, homeowners who purchase a median-priced house, live in it for at least five years, and sell it at the then-current median price, have averaged an annual rate of return of more than 11 percent.

In a market like this, where prices are lower, interest rates are lower, and the government is offering heavy tax incentives, it may make sense for you to consider buying vs. renting. Watch, too, for our newest offering coming soon, the 2010 Buyer Bonus Sales Event, where, in addition to government incentives, your home may qualify for an additional $10,000 seller incentive. There are many factors to consider to determine if this is the right option for you, but now is the time to consider if buying a home can benefit you.

Get your Instant Home Value…