Realtor speak says: “Now’s the time to buy. Renting is nothing but wasted money.” Cautious first time buyers, meanwhile, hear whispers that the market hasn’t bottomed out, or that qualifying for a jumbo-loan is harder than ever, so they wait, convinced that the time to buy is not in fact now, and that renting is the best economical descision. Ironically, such fence-sitting drives rent up.
The Chronicle puts the situation this way:
Matthew Hackett, underwriting manager for Equity Now, a Manhattan mortgage lender, said buyers who need jumbo loans – those above $417,000 – must typically have enough savings after the purchase to carry them through at least six months of mortgage payments. “And if you want a good rate,” Hackett said, “it’s more like 12 months.” That could change in July, depending on how the lending market reacts to mortgage-related elements of the economic stimulus package signed last month, when the jumbo threshold is expected to rise to about $600,000 – the exact figure still must be set by the Department of Housing and Urban Development.
We aren’t too sure on that relief, as fellow blogger David Gordon has pointed out. Meanwhile, “Housing Council, a trade group in Washington, said rents could rise, given the growing demand among people who cannot qualify for mortgages or those waiting out the declining market.”
So how do we know what to do? Old fashioned math is one place to start (though I readily admit : not my favorite place, since I suck at math). One rescource you can access is Submedian’s ownership expenses calculator, or plug your figures into the New York Times’ rent vs. buy calculator.
You can also compare rents to mortages in a more side-by-side style. For instance, here is a 3/2 single family at 1862 39th Ave. for $799,000. With 10% down and interest of 6.5% on a 30-yr fixed loan, you would pay $5733.05 per month including an estimated property tax and the PMI since you only put down 10%.
The same property, at the same interest rate, with 20% down= $4832.55. You save a lot with 20% but that assumes you have almost 160K saved to put down. Most renters I know do not.
Meanwhile, a similar house, a 3 bedroom on Lake St. in the Richmond, rents for $3800.
Let’s take another example. Here’s a 2/1 TIC at 2916 Taraval, #1 that has been on the market awhile for $425,000. Obviously more affordable, with the same parameters as the above home, but this time with 10% down on 425K, you pay $3049.49. With 20% down, you’d pay $2570.49- but you’d have to have 90K free to take advantange of that savings.
Renting a similar unit (a 2 bedroom flat/apartment in the Outer Sunset) will run you from $1750 to $2125 or more. You will pay utilities, most likely, on rentals, which adds to the monthly, but keep in mind you also pay utilties on your owned home, as well as insurance, and in the case of a TIC or condo, an HOA.
Thus even with rents shooting up these days, the idea of breaking into actual home ownership seems just as much a fantasy for many would-be first time buyers as it ever has. But that’s just one person’s read on the figures. What’s yours?