Should You Buy or Rent? New Buy vs Rent Index Helps Answer Question
The introduction of the new Buy vs Rent Index is a welcomed tool for anyone deciding if they should buy a home or rent. The typical approach to this decision are the generic online calculators. The New York Times has a very thorough calculator that can help you sort out the equation based on a comparison of monthly rents with mortgage costs for similar type of homes. Calculators, however, do not indicate which direction the real estate market is heading or context regarding how the market has performed in the past. Most of us aren’t really qualified to figure out those predictions.
The Buy vs Rent Index
Three Florida scholars from the Florida Atlantic University College of Business, recently introduced a different way to look at the question with their Buy vs. Rent Index. The Beracha, Hardin & Johnson Buy vs. Rent Index is an index designed to signal whether current market conditions favor buying or renting a home in terms of wealth creation over a fixed holding period in a particular market relative to historical market conditions and alternative investment opportunities. Watch the video for explanation:
What Does the Buy vs. Rent Index Say About the St. Louis Area?
As you can see by the above graph,it was better to buy from approximately 1982-2000. Due to many factors, the index favored renting starting around 2001-2111.
In 2011 the numbers favored Buying and continues to do so.
Your Personality in the Equation and Answer
Stacey Johnson, from Moneytalk News (great website) sums it up nicely:” The number one thing you have to ask yourself is, ‘Am I a strong saver?” says Johnson in the video introduction. “Because the model we built all this on assumes that you will take all that money and reinvest it – monastically – into the stock market or into the bond market … If the answer is no, you need on average to lean a little more towards ownership … because home ownership, at its heart, is a forced savings plan.”
Non Financial Factors for Purchasing a Home
Soul searching and prioritizing what’s important … not so easy! Here are some more factors to consider:
Age: Are you young and want to continue to be mobile? You might be better off renting.
Family: Are you planning on having children? It’s hard to put a price tag on the love and support of grandparents and family members and being able to help them out when they need it.
Schools: If you have children the quality of schools takes on a greater importance.
Personalization: Do you like transforming places, changing things up, adding your own flair to your lifestyle? Do you like to remodel and make things your own?
If so, welcome to the world of DIY projects which will be an ongoing part of your new life as a homeowner.
There really is no right or wrong decision here as it is such a personal thing that only you can decide.
As my Dad used to say, “Measure twice – cut once.” Take your time on this decision.
If the time is right for you and you’re leaning towards buying a home, please don’t pick just any agent to help you. Consider what’s called an Exclusive Buyer Agent to help you in your home search and purchase. Why? Because an Exclusive Buyer Agent only represents you, the Buyer, never the Seller, and can provide you with a level of representation and transparency that seems to be lacking in today’s market.
100% Buyer Representation – Why settle for anything less?
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