Yesterday, the Cromford Report staff posted some info and a chart about the "Buy vs. Rent" argument for people living in the Phoenix & Scottsdale Metro area. I know lots of people are still having this debate with themselves... or not because they've prematurely ruled it out.
Remember, the Cromford Report is headed up by Michael Orr, the Director, Center for Real Estate Theory and Practice and actual statistics- there are no feelings involved here...
Here's what they wrote:
December 15 - Does anyone remember the days when 5% annual appreciation was considered really good? These days it appears that some consumers now perceive anything under 10% as horrible, and reason enough to keep renting. As our market returns to normal it may be beneficial to help future homeowners, specifically the millennial generation, visualize where they could be in 5 years with a “horrendous” 4% appreciation rate. For the following example, we chose a $175,000 purchase with 3.5% down since it falls in line with where a first-time home buyer might start.
Home ownership in these circumstances gives the borrower a net equity of almost $60,000 after 5 years. Not bad compared with renting a property for the same 5 years. We assumed that the seller paid all the closing costs (which is quite a reasonable assumption these days).
The secret ingredient is leverage. The borrower puts only 3% down but gets to keep 100% of the appreciation. With interest rates as low as they are today, the millennial generation will probably want to kick itself in ten years time for the missed opportunity today.
Even with no appreciation the borrower gets net equity of $22,000 after 5 years, because a chunk of the monthly check goes to pay down the outstanding loan balance. However property taxes and maintenance will eat into that.
Realistically, 4% appreciation is over twice as high as inflation and a very satisfactory rate for the realistic homeowner.
Even if your ideal home isn't in the $175K range, I've seen a lot of really great options for buyers like 3.5% down on an FHA loan (up to $271,050), 5% down and sometimes as low as 3% on a conventional (up to $417K) loan; 10% down on a jumbo loan (over $417K) up to $1M.
Yesterday a client who was planning to relocate here likely to the Desert Ridge Area was floored to find out that the homes she was considering renting cost about the same as what she would pay if she bought. Even better was the realization that she wouldn't have to put 20% down to do it!
There are a lot of different loan programs for different borrowers' needs- even the ones with less than perfect credit. You just have to know who to ask about them. At the end of the day, would you rather pay your mortgage or someone else's? That's kind of what you're doing when you rent...
Still not convinced you want to do the actual math and figure it out for yourself?? I get it- math isn't everyone's cup of tea, but even if you can't do it yourself, sometimes it pays to do the work even if you have to get someone else to do it for you... I'm pretty good at math myself and am only a call or email away (AND happy to help)!